* A presentation for GLOBAL
ECONOMIC OUTLOOK 2002 SEMINAR, CITIBANK- JAKARTA, April 8-9, 2002.
· What have been transpiring from
the macroeconomic management, monetary and banking sectors in particular.
· Problems and challenges in the near future
· Some caveats: My assessments are based on my experience in
past works within the Indonesian Monetary Authorities, and my background
as a monetary economist. However, I have been away from the scene
for more than four years.
· There are, at least, three crucial requirements for policies
addressing contagion to be effective that produce a turning point
and sustainable recovery that include:
1. Prompt acknowledgment and acceptance of the crisis
2. Prompt action to design workable adjustment policies
3. Consistent implementation
· Strong growth of the world economy, the locomotives in particular,
· A casual observation on what had been unfolding in the Asian
crisis countries seems to suggest the validity of the above explanation
on whether and how a crisis country would fare in its effort to address
· Inconsistencies had been the main features of Indonesian
policy implementation. Indonesia had been experiencing a muddling
through process in resolving the crisis from the governments under
Soeharto, Habibie and Abdulrahman Wahid.
BRIEF LOOK AT THE PAST
· The Indonesian case is peculiar
among the crisis countries of Asia. In spite of similar or even better
economic fundamentals at the outset of the crisis, plus early policy
responses that were well recognized as being proper and prudent, Indonesia
had been known as a basket case.
· The Indonesian crisis: It is home grown, but certainly not
home alone. What went wrong and how did it happen?
· Thailand, Korea, Malaysia and the Philippines were well ahead
in their recovery after the turning points. In 1999 they were back
to their pre-crisis levels in some of their macro economic performances:
exchange rates, level of reserves, economic growths and others (V-shaped
· Indonesia was still in its struggle to consolidate its turning
point towards recovery. In fact, Indonesia was wasting the momentum
and losing a golden opportunity in 1999. The government of President
Wahid failed to consolidate the good start and to mobilize the friendlier
domestic and external environment for Indonesia's recovery.
ASSESSMENT OF CURRENT DEVELOPMENT
· An euphoric public and market
welcoming President Megawati and her government. Domestic and external
supports of the new government
· However, the ghosts of the past and the muddling through
of resolves in addressing the crisis have been constraining the government
efforts for consolidating the weak turning point into a recovery and
· There is rampant inertia. Confronting with complicated problems
in new environments -- the process of practicing democracy and enhancing
transparency and governance in a global economics and finance -- the
risk of failures is bigger. Are leaders becoming more risk - avert
or taking too much political calculation in the conducts of governing?
ISSUES IN POLICY AND IMPLEMENTATION
· Exchange rate policy: from managed floating and crawling
peg to free float in the era of bipolar system and corner solutions.
Lingering issue on what is the 'right' exchange rate system for Indonesia?
· Is independent central banking still an issue? Issues on
amending the central bank law.
· What is the Vice President recovery program?
· What is the Fund's role?
· Problems of debts: problems with respect to the size and
the servicing (sustainability) for both government and corporate.
Foreign public debts (USD 70 billion, USD 5.5 billion needs to be
restructured through Paris Club), domestic debts (USD 66 billion with
50 billion rupiah service payment annually). And corporate debts?
· Bank restructuring and sales of assets under IBRA: reflection
on recent developments : cement Gresik and BCA
· Privatization : political and economics issues
· The new paradigms for economic
management in a global era. The global economic and finance demands
micro-macro consistency in economic management that has to go hand
in hand with transparency, accountability and governance, a democratic
system. Economic management has to be based on and guided by these
· Recent improvements have given some breathing space. But,
they could not provide the national economy with more needed certainty
and safety for doing business, returning of capital parked abroad
as well as new foreign investments
· The political elite has not been forthcoming in term of their
resolves for addressing the national issues; it is unlikely that a
breakthrough could come out prior to 2004.
Jakarta, April 2002