Indonesia faces reality
At first sight, Indonesia's acceptance of the stringent conditions attached to yesterday's huge international bailout package appears to signal a new realism in Southeast Asian economic affairs. Ever since the rupiah plunged so dramatically this summer, Indonesia's President Suharto's government has shown a greater understanding of the need for far-reaching reform than its counterparts in Thailand and Malaysia. Its apparent readiness to bite the economic bullet had already won support in the international community, despite worries over other aspects of the President's rule.
But it was undoubtedly the agreement to shut down loss-making banks, (a decision which the Thais are having infinitely more difficulty in implementing), which has secured Indonesia the solid financial backing the country needs.
What is now to be seen is whether Indonesia will forge ahead with painful structural reforms that may take decades to benefit the population at large, while causing more immediate pain. Implementation is likely to be easier for Jakarta than for Bangkok because of the more effective authoritarian system in Indonesia. More fundamentally, however, the difference seems to be that Indonesia, unlike Thailand, has clearly recognised it does not have a choice.
As International Monetary Fund Director Michel Camdessus put it, the arrangement was approved in response to the country's 'impressive programme of macro-economic adjustment and structural reform.' Failure to implement this would, clearly, have drastically reduced the country's creditworthiness.
By any standards a loan of US$23 billion from the international financial institutions, and a further $14 billion from the US and Asia, is a huge injection new capital. President Suharto must now prove he can deliver on his initial promises. This is not just a matter of letting banks go to the wall, improving tax collection or balancing the budget, impressive though any of those achievements would be.
Large chunks of the economy must also be freed from monopoly control. Some costly prestige projects will need to be reconsidered. First among these should be the US$1.3 billion national car project, established under the President's son, Tommy. More generally, liberating the economy from the grip of the presidential circle would show that the President is serious about reform.