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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

'THE CHALLENGES ARE STARK'

The IMF on deficits, debts and safety nets


Indonesia's Elections: History in the Making Endgame The jockeying begins as the vote count plods on

Casualty Targeting the attorney-general

Economy Getting better but still rough

Interview The IMF's Indonesian agenda

Elections Who says democracy is better?

previous stories
Decision '99 Only a slow vote can spoil Indonesia's free and triumphant elections

The Parallel View Flashback to the 1955 ballot

Money Talked, But How Loudly? Accusations fly that Golkar and others misused funds to woo voters
ANOOP SINGH, DEPUTY DIRECTOR of the IMF's Asia and Pacific Department, is encouraged by Indonesia's elections and its future ruling coalition. "We see the new government as a major opportunity to intensify and accelerate the program," he says, "whichever government it is." Educated in Bombay, Cambridge and the London School of Economics, Singh, 48, oversees Thailand and, of late, Indonesia. The Fund, he says, has discussed restructuring with major parties and "everybody agrees this is needed." Excerpts from a talk with Asiaweek:

What are the challenges for Indonesia?

The challenges are starker than for other [Crisis] countries. We're dealing with bigger banking insolvency and deeper corporate insolvency. The challenge is to restore a fully functioning banking system quickly at a fiscal cost that is sustainable. A related and intertwined challenge is the restructuring of corporate balance sheets. In banking, the challenge is restructuring state banks, in two ways: to launch a credible loan and asset recovery program, initially targeting the largest borrowers; and to apply this strategy uniformly and fairly. But there must be a stringent effort to recover loans - that is the most important. Without that, the cost of restructuring will be very large. The other [issue] is the strategic design of how state banks will be restructured and downsized. That does not yet exist for most state banks or banks taken over by [the bank restructuring agency] - collectively, three-quarters of the banking system. Once bank restructuring is on the way, it should accelerate corporate restructuring. Here, there has to be a more credible threat from the bankruptcy law.

What about macroeconomic and fiscal policy to spur recovery?

In Korea and Thailand, entrenching the recovery necessitated temporarily having a fiscal deficit focused on the safety net [programs for Crisis-hit people]. For Indonesia this is very important: not only must spending rise, but it must be high-quality spending focused on the safety net. Now that exchange rates have been stabilized and confidence has come back, interest rates can also decline. With confidence consolidating, interest rates will fall into the teens, not very far from [levels] before the Crisis.

Supporting bank restructuring will be a major burden on the budget in the coming years. The current budget targets gross interest costs of about 2.8% of GDP; they are likely to be larger, possibly significantly higher. But Indonesia has very low or no domestic public debt. There is room to issue bonds. Second, we assume the government will be successful in increasing loan recovery and in recovering assets, and that will help offset costs. Then there is privatization. In the last six or seven months there has been a lot of interest from foreign investors in buying state assets. About $800 million [worth] have been sold.

Is transparency a concern in restructuring and privatization?

In loan recovery the strategy will be made transparent. That is why the government has released the names of the largest borrowers. Credibility can only be achieved if there is transparency. We have tried to make the program as transparent as possible, and are looking for ways to make it more transparent.

If major anomalies arise, will the IMF withdraw support or offer criticism?

We have no reason to believe that situation would arise. Everybody we have spoken to, from the government and outside, is convinced that market confidence needs to be rebuilt, but it cannot be done unless there is transparency . . . We are at a stage where transparency has been built into the program, and reversing it is very difficult.


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