DATE=10/5/1999
TYPE=BACKGROUND REPORT
TITLE=INDONESIA / ECONOMY
NUMBER=5-44412
BYLINE=AMY BICKERS
DATELINE=HONG KONG
INTERNET=YES
CONTENT=
VOICED AT:
INTRO: Indonesia's political woes are damaging prospects
for the country's fragile economy. As Amy Bickers reports
from the V-O-A Asia News Center, the confidence of foreign
investors and international lending agencies has been badly
shaken by recent events.
TEXT: Several months ago, economists were saying that
Indonesia was finally making progress after the financial
crisis of 1997, which shook the foundations of the
country's economy. Analysts say a 43-billion dollar
bailout package from the International Monetary Fund last
year and government policies to clean up the debt-ridden
banking sector were helping Indonesia work through the
turmoil. The rupiah began to stabilize and inflation was
low.
But now, a string of events has brought the nation to the
edge of an economic collapse. Bruce Gale, an analyst for
the Economic and Political Risk Consultancy, says they
include a 70-million dollar scandal at Bank Bali allegedly
involving members of President B-J Habibie's inner circle
and the bloodshed in East Timor, following the recent
referendum on the territory's independence.
/// GALE ACT ///
The Bank Bali scandal casts a long shadow over the
government's seriousness in dealing with the banking
problems, and the East Timor situation has been bad
news all around for Indonesia, exposing the ability
of the army to act independently, the inability of
the president to do much about that, and in general,
weaknesses of the Indonesian institutions - the
presidency, the judiciary, the central bank. All of
the institutions are exposed for the essential
weakness. I think this is the basic political problem
facing the country, and it is an economic one too.
/// END ACT ///
Analysts sat the recent student protests in Jakarta, in
which seven people died, have also undermined confidence,
because they reflect wide dissatisfaction with the
government. The demonstrations followed parliament's
approval of a new law increasing the power of the military.
The government has since shelved it.
Mr. Gale says the uncertainty has put international lending
institutions on the alert, further undermining confidence
in the financial markets and among private investors. In
the past six weeks, the International Monetary Fund, the
World Bank and the Asian Development Bank have frozen
scheduled payments and additional funds they had planned to
disperse to Jakarta in the coming weeks.
/// GALE ACT ///
I think that the most important thing to consider is
that institutions like the I-M-F and the World Bank
are threatening to withhold support unless the
government gets down to this business of looking into
the Bank Bali scandal and other associated scandals.
This is a very difficult problem for the government
because it is quite possible that some influential
figures could be implicated.
/// END ACT ///
Private lenders have taken these concerns to heart and
numerous business deals with Indonesia remain on hold,
including the sale of Bank Bali to Britain's Standard
Chartered Bank. To make matters worse, Jakarta says it
wants to postpone repayment on more than two-point-six
billion dollars in foreign debt.
The result is that Indonesia is forced to do without
desperately needed hard currency that would get the economy
moving again.
Now the focus of investors and economists will be the
presidential election in Indonesia on October 20th. Polls
show opposition leader Megawati Sukarnoputri is the first
choice of the Indonesian people. Many economists and
market watchers also favor her. But her victory is by no
means guaranteed, since the decision will be made by a 700-
member assembly of legislators and appointed
representatives.
The current government and opposition politicians have
asked the I-M-F for talks on economic policy after the
ballot is held. But officials at the lending agency say
Jakarta must make public more information on the Bank Bali
case before the flow of funds can resume. (Signed)
NEB/AB/FC/KL
05-Oct-1999 08:59 AM EDT (05-Oct-1999 1259 UTC)
NNNN
Source: Voice of America
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