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Indonesia in recovery
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September 30, 1999: 9:04 p.m. ET
Economic optimism mirrors sentiment of '99 IMF-World Bank meetings
By Staff Writer M. Corey Goldman
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WASHINGTON (CNNfn) - Thailand. Malaysia. Indonesia -- countries whose names conjure up visions of the mayhem, chaos and financial ruin of less than two years ago.
Yet for the first time in a generation all three of these lands are reporting single-digit inflation, interest rates at comparable levels with the West and economies that are moving at an ever-more-productive pace.
Indonesia, in particular, has seen its economy pull a complete U-turn. In 1998 inflation ran at a whopping 12 percent -- a month. By the end of this year the Indonesian Central Bank will set a yearly inflation target of around 3 percent -- a year.
"One cannot deny the fact that we have come a long way in bringing the economy to its feet," Dr. Miranda Goeltom, assistant governor of the Central Bank of Indonesia, told CNNfn.com in an interview at the International Monetary Fund-World Bank annual meetings in Washington this week.
Complete independence
Dressed in an elegant gray two-piece suit and sporting a Hillary Clinton-like haircut, the 50-year-old second-in-command at Indonesia's central bank spoke candidly of her plans to make Indonesia's monetary policy just a little more American-like.
The soft-spoken central banker was equally candid about her and the other seven governors' independence from the Indonesian government, which has been embroiled in the widely publicized East Timor conflict and could be facing a national election as soon as November.
"We have more room to do the best strategy in conducting our monetary policy without having to worry about any power pressure," she said.
The Indonesian government passed a law in May granting its central bank complete autonomy, allowing it to take the reigns of the economy and run it the way it sees fit. Whatever the new government becomes, the central banks board of governors cannot be changed until their terms are completed. Goeltom and the bank governor, Syahril Sabirin, have another four years left in their term.
Conflict of interest?
Some changes the central bank has already implemented include focusing on lowering inflation, injecting liquidity into the country's monetary system and cleaning up its reporting standards to make its books more transparent.
That should help the Indonesian Rupiah, which was battered alongside the Thai baht in the aftermath of Asia's financial crisis. Goeltom said the Rupiah will appreciate as investors regain their confidence in the country's economy. "I would not be surprised to see the Rupiah at 6,500 to the dollar by next year," she said. Currently $1 buys roughly 8,300 Rupiah.
The central bank is also adapting suggestions made by the IMF and World Bank, who have been working with Indonesia along with Thailand, Korea, Malaysia and the Philippines to improve their economies.
For Goeltom and the central bank, however, there are some conflicts of interest developing. She and the seven other governors she works with have complete control over monetary policy, yet little they can say or do about the country's fiscal policy.
Upcoming elections
The IMF has tried to help Indonesia reform its banking system, which is about 85 percent state controlled, with very limited success so far, said Stefan Ingves, director of the Monetary and Exchange Affairs department of the IMF.
One of the main hurdles for Indonesia and its central bank is the upcoming election. The new government, working with the IMF and the World Bank, will dictate what kind of reforms will be implemented on the fiscal side and under what terms.
"Everyone agrees that privatization is important, but not everyone agrees on how that should be done," Goeltom said. "Each party will have different views on how that privatization should take place, and they all agree it should happen, but the outcome is beyond the control of the central bank."
That could leave the central bank in the wind when it comes to convincing the rest of the world that its monetary policy is sound and that its financial system, particularly its banks, will be capable of fending off a speculative attack on its currency should another meltdown hit the region again.
"We are restructuring our liabilities, our debts," Goeltom said. "That's why we were so vulnerable before. Our financial system is improving. Our valuations are now based on international standards, which was not the case before, but it's up to the government to continue those reforms."
Wrapping it up
Like the prevailing sentiment of other central bankers and ministers at this year's IMF-World Bank meetings, Goeltom is optimistic that reforms will work and that Indonesia and other countries in the Far East and elsewhere will become more prosperous and less vulnerable than in the past.
In 1997 and 1998 the IMF put together bailout packages worth more than $120 billion for Indonesia, South Korea, Thailand, Brazil and Russia. The crowning glory of this year's meetings was an agreement on how to relieve overwhelming debt levels plaguing the world's poorest countries. Both the United States and the United Kingdom pledged to consider writing off 100 percent of what is owed to them by some of the world's worst-off nations.
This year's meetings also focused on how countries like Indonesia and its Far Eastern and Latin American cousins overcame their massive problems -- and how they can avoid crises in the future.
"The bitter IMF medicine has been tried on people, and people have found it good," IMF Managing Director Michel Camdessus told a closing news conference on Thursday at the end of 10 days of talks.
As for Indonesia, Goeltom is optimistic the worst is over. "When I walk down the streets of Jakarta I see that retail has picked up, that supermarkets are full, that people are shopping," she said. "There is growing demand for Indonesian products and there is growing interest in investment, which together will lead to better things for us."
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