SUNS 4300 Tuesday 13 October 1998
DEVELOPMENT: INDONESIA SAYS IT IS RECOVERING
United Nations, Oct 11 (IPS/Thalif Deen) -- Indonesian Foreign Minister Ali Alatas laughs off the joke that the United Nations was on the verge of declaring his country one of the world's poorest nations - alongside the likes of Rwanda, Bhutan, Burundi, Haiti and Chad.
"We have been through the worst economic crisis in our history," he told IPS, "But our basic financial structure was so solid that we have been able to bounce back."
Alatas said that Indonesia, until the mid-1997 crisis, had one of the strongest economies in the Southeast Asia. "We made mistakes along the way but we are now proceeding on the right track - although we do have some distance to cover," he conceded.
After more than 13 years of vibrant growth, Indonesia's economy was expected to contract this year, to minus 1.5 percent compared with 8.2 percent in 1995, 8.0 percent in 1996 and 4.7 percent in 1997. Still, the U.N. Economic and Social Council for Asia and the Pacific (ESCAP) expected the growth rate to pick up next year: rising to 3.5 percent in 1999 and 4.0 percent in 2000.
Alatas said that Indonesia presently was in the process of "stabilising and rehabilitating" its economy.
"Our major focus is the banking sector. We are recapitalising some banks and closing down others.
Our banks can also no longer over-borrow," he added.
Like the US Federal Reserve Bank, the Central Bank of Indonesia now stands on its own, and armed with more powers, he said. Indonesia had set up both a Bank Restructuring Agency and the Debt Restructuring Agency.
The Indonesian government was trying to resolve its private debt, amounting to about 80 billion dollars, and was in the process of strengthening its social safety net by providing subsidised food,
health care and education to millions of poorer people in the country, he said.
"The dropout rate was rising because parents couldn't afford to keep their children in schools. We have stopped it by subsidising education," Alatas said.
The government was trying to stem rising unemployment by providing new labour-intensive public works programmes so that people can remain employed, he said. As the national currency collapsed, the U.S. dollar fetched an unprecedented 17,000 rupiahs in June 1998 compared with only 2,400 before the economic crisis broke out in mid-1997. Last month the exchange rate stood at 11,000 rupiahs to the dollar.
"We have succeeded in stabilising our currency," Alatas said - noting press reports Friday that the rupiah had rallied sharply breaking the 10,000 level to the dollar, reaching the 9,150 mark.
In July last year the World Bank predicted that 50 million of Indonesia's 200 million people could fall below the poverty line. The situation was further aggravated by a severe drought and reports of
widespread starvation.
The Bank's dire predictions contrasted with the country's positive economic growth that averaged about 7.0 percent annually for the past several years. At the same time, Indonesia's per capita income rose from 70 dollars a year in 1969 to 1,115 dollars in 1996.
According to the United Nations, Indonesia had one of the world's most successful family planning programmes for which former President Suharto was honoured at a U.N. ceremony several years ago.
Indonesia's economy was salvaged by a hefty 40 billion bailout package put together by the International Monetary Fund (IMF), along with assistance from the World Bank, the Asian Development Bank, United States, Japan, Singapore, Malaysia and Australia, among others.
An IMF-inspired reform package, currently being implemented, includes the end to government monopolies in wheat, soyabeans and garlic, and lower tariffs on chemicals and steel that have protected state-run organisations owned by one of Suharto's sons.
The new government headed by President B.J. Habibie was trying to recover some of the estimated 30 billion dollars in assets belonging to the Suharto family. The assets were mostly the fruits of "crony capitalism" as the former president's family enjoyed the benefits of monopolised businesses protected by government patronage.
"As part of our political and economic reforms, we are trying to put an end to corruption and nepotism," Alatas said, adding that "there will be more transparency" in government in the future.
He pointed out that the nine-nation Association of Southeast Asian Nations (ASEAN), of which Indonesia is a member, warned in October 1997 that there was more to the Asian economic crisis than domestic issues.
"We acknowledge we may have had shortcomings and deficiencies in our policies. We said our private sector may have overborrowed. Our banking system may have been weak and there may have been misallocation of our investment resources," he said. 'We accepted all of these. But we also told the international community that these factors alone cannot account for the meltdown of our once strong economies."
"Our economic fundamentals have been good - and therefore there may have be an external factor on top of all these. But we were not taken seriously. We were accused of finding scapegoats," he said.
And that outside factor, he said, was globalisation in its negative aspect, especially in money and finance.
"We saw a very sophisticated display of what globalisation can do when huge amounts of short term capital - running into billions and billions of dollars - started moving at tremendous speed in and out of our economies."
Adding to that, he said, was the speculation in currencies, by hedge funds, pension funds and insurance funds.
"There was massive buying and selling to a point where currencies were not being used as a mode of payment but as a commodity in the market place," he added. "And eventually, it brought down all of our currencies - the Thai baht, the Malaysian ringgit and the Indonesian rupiah."