Pointers
for a presentation at James J. Shin Roundtable Series,
Council on Foreign Relations, New York, December 2, 1999.
By J. Soedradjad Djiwandono
IS
THE CRISIS OVER?
Despite
its relatively better macro conditions and better
policy responses at the start, Indonesia has
become the worst crisis country in Asia. Why
is this so and what are the implications to the
region?
General
views: the crisis is behind Korea, it is
bottoming out in Thailand and some cautious
optimism in Indonesia.
Cautious
optimism for the near term prospects of Indonesia:
Positive reactions on the Election of June and
the coming of Gus Dur-Megawati leadership. The
good news and the concerns, what are they?
Paul
Krugman, "Asia Recovering? It may be a
false dawn" ( Business Times, Singapore,
August 1999 )
WHAT
DANGER STILL LOOM ON THE HORIZON?
In
general to end the crisis there has to be a turning
point which should come from politics, like a
change in government. It was very clear in Korea
and Thailand. It also explained why Habibie
government could not produce a turning point.
With
a democratic election of DPR and generally more
transparent election of President and the Vice
President the new national leaderships
received legitimacy that could produce a turning
point. The turning point stopped the process
of downward spiral of economic, social and
political deterioration.
But,
from stopping a deterioration process to
initiating a recovery and beyond other
requirements should be fulfilled. This is
when concerns start popping out.
Out
of many factors causing or contributing to the
economic crisis, two problems considered to be
critical : First, weaknesses in the banking
system. Secondly, unsustainable corporate
debts in foreign currencies (dollar)
Weak
banking system : banks' problems, weak
financial infrastructures, lack of transparency
and weak governance. Problems of bank
re-capitalization and restructuring, IBRA
performance and its problems : economics, social
and politics. Bank scandals and their resolutions
Financial
infrastructures: BI independence, problems of
bank supervision, regulations and judiciary
problems. A new hope in the recent
administration? Recognition of separation of
powers (trias politica). How about governance and
transparency?
Additional
problems : misunderstandings and wrong
perception about banking and banking problems and
their solutions.
Corporate
debts: issues of moral hazard: fixed exchange
system? Government guarantee? Perception seems to
be more important than substance.
What
to be done domestically: monitoring? Or capital
control? Market discipline in risk taking.
Internationally?
How to make financial supervision reach lenders
in assessing risks in their lending policies.
What has been done in multilateral institutions?
The new international financial architectures;
transparency and good governance, introduction of
international standard. Balanced between
standards that are internationally accepted and
at the same time appealing for countries to adopt
them.
Some
concerns arise from: the compromised Cabinet
which produced unity could be at the cost of its
effectiveness and professionalism; putting IBRA
directly under the President signaled some fight
for its control by political interest rather than
the national interest for fastening the process
of banking restructuring. Less focus on getting
the banking sector back to its normal condition
to serve the national economy toward recovery;
Aceh and other regional problems. In short, even
though market general reaction has been very
positive to the new team of national leadership,
some concerns are valid. Thus, in the short
term the prospect is cautiously optimistic.
And so is the long term.
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