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JULY 3, 2000 VOL. 155 NO. 26


Kemal Jufri/Corbis Sygma.
Bank Bali staff voice their anger over a corruption scandal.

THE ECONOMY
Who's Minding the Store? Er ... Nobody
By JASON TEDJASUKMANA Jakarta

On the afternoon of May 29, Abdurrahman Wahid nearly sent a jolt through the Indonesian economy. Earlier in the day, the Jakarta stock market had slid 4.3% on news of bombings in the North Sumatra capital of Medan. The rupiah was on a similar trajectory, and Wahid decided that something must be done to halt the currency's free fall. That Monday, addressing his regular meeting with economic advisers, the President announced it was time to impose stricter foreign-exchange monitoring of exporters and prohibit overseas trading of the rupiah. "The room was silent," recalls Faisal Basri, chairman of the Assistance Team, one of five bodies established to advise the President. "I told him the market would interpret the action as a sign of panic and to please reconsider."

Wahid did eventually reconsider, and Indonesia narrowly avoided another collision with the International Monetary Fund, which takes a dim view of currency controls. At the time of the meeting, IMF officials were in Washington to negotiate the release of $372 million in suspended loans from its current $5 billion aid package, funds vital to an economy crippled by nearly three years of political upheaval. While the money has recently been freed up, the Fund remains cautious. It conducted a review of Indonesia's reform program this month and has plans for two more this year. Markets, foreign investors and Indonesian businessmen all remain skeptical of Wahid's grasp of economic issues and whether his hand-picked advisers can steer him in the right direction. "We can't prevent him from having wild ideas," says Sri Mulyani Indrawati, Secretary of the National Economic Council. "All we can do is damage control."

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And they haven't done much of that, either. Despite a 36% rise in exports in the first four months of 2000, 2.4% year-to-date inflation and 3.2% year-on-year GDP growth in the first quarter, the Indonesian economy isn't inspiring much confidence, at home or abroad. The rupiah has lost 25% of its value since the beginning of the year, the Jakarta Composite share index has plunged 29%--making it one of the world's worst performers this year--and foreign investment approvals in May were down 84% from the previous month. Unemployment has soared to nearly 40% of the workforce.

If Wahid is aware of the seriousness of the crisis, he isn't showing it. His coalition cabinet appears more interested in party politics than in coming up with clear and coherent economic strategies. "Each minister has his own idea, and that leads to confusion," says Martin Panggabean, chief economist at Bank Mandiri. It doesn't help that Wahid runs a revolving door cabinet. Since October, he has axed five ministers in an apparent bid to consolidate political power, usually with little explanation. The most controversial sacking was that of Laksamana Sukardi, former Minister of Investment and State Enterprises, in April. The ex-Citibank vice president was highly regarded for professionalism and a commitment to clean government. His dismissal raised fears that Wahid may be taking the economy out of capable hands and placing it into the pockets of his inner circle. Two close associates of Wahid have taken over the influential economic ministries overseeing state-owned enterprises, industry and trade, though critics question their experience and qualifications. "People are confused about whether he is sincere or just catering to certain interests, repeating the mistakes of Suharto and Habibie," says adviser Sri Mulyani.

Expect more rough times in the weeks ahead. Rice prices and interest rates are rising and fuel subsidies are to be removed in October, on the IMF's advice. An embezzlement scandal involving Wahid's former masseur--who is said to have received $4.7 million from a government agency--remains unsolved. The President's standoff with central bank governor Sjharil Sabirin, under arrest for his suspected role in last year's Bank Bali scandal, could backfire unless the Attorney General presses corruption charges to prove that the governor's 20-day detention was not a pretext to replace him with a Wahid candidate. And who knows what the President might come up with at the next Monday meeting?

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