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Gold/Mining/Energy : An obscure ZIM in Africa traded Down Under -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (404)	10/28/2002 12:24:12 AM
From: TobagoJack	Read Replies (1) \| Respond to of 867

Indonesia online.wsj.com Prisoner of Politics By TIMOTHY MAPES JAKARTA, Indonesia -- Indonesia's wounded economy likely will limp ahead in 2003, driven by resilient consumer demand for homemade products such as cigarettes, instant noodles and motorbikes. But halting progress toward key economic reforms could slow further, limiting Indonesia's ability to lure foreign investors and accelerate economic growth. The reason: Looming elections in 2004, which could stir political nationalism and complicate renewal of the International Monetary Fund's lending program for the country, due to expire late next year. "I do fear growing pressures for more trade protection and less privatization," in the run-up to the elections, says Mark Baird, the just-retired director of the World Bank's Jakarta office. "Such populist measures are unlikely to lead to any sustained improvement in growth." Fallout from October's terrorist attack on the resort island of Bali, in which scores of foreign tourists died, also is likely to slam the country's tourism sector, which is a key earner of foreign exchange. But although economists expect the impact on the economy of the island to be severe, the overall impact on growth is expected to be slight. Foreign investors have generally steered clear of Indonesia in recent years, leaving the country to recover on its own from devastating economic and political crises in 1998. That meltdown saw a single-year contraction of 14% in Indonesia's gross domestic product, left the banking system on the verge of collapse and triggered bloody riots that drove then-President Suharto from power. Recovery has been slow and fitful, hampered by continuing political turmoil and uncertainty over how to deal with the mountain of debt the government assumed by taking over much of the banking system. Indonesia: Economic Overview Since coming to power last year, President Megawati Sukarnoputri has restored a modicum of political stability. But she also has been criticized for moving too slowly to fix the economy. Investors complain that Jakarta must pursue reforms more aggressively by selling state companies, reducing import tariffs, restructuring the bad debt left over from the 1997-98 financial crisis and cleaning out rampant corruption in the legal system. Bali Fallout Ms. Megawati's 2003 budget pegs growth next year at about 5% -- an estimate that most independent observers said was optimistic even before the Bali blast. Now, even the government has acknowledged that it will have to revisit some of the economic assumptions in light of the terrorist attack, and most economists say that growth of 3%-4% looks more likely. While 4% growth isn't bad by regional standards, economists fret that it isn't enough to create jobs for the estimated two million young people who enter the work force each year. Concern about jobs has heightened in recent months following moves by foreign garment makers and shoe companies to divert orders from Indonesian producers. In midyear, for example, U.S. shoe companies Nike Inc. and Reebok International Ltd. canceled orders with Indonesian suppliers, throwing roughly 12,000 workers out of work. Indeed, analysts see signs that job losses are starting to slow consumer spending, which lately has sustained Indonesian growth. ING Securities, for example, has downgraded earnings estimates for all but a few of Indonesia's main consumer-driven companies. IMF's Influence But for most investors, the biggest question for Indonesia is what will happen when the current $5 billion IMF lending program expires toward the end of 2003. The IMF has been a key force in pushing the Indonesian government toward market-opening measures, and its presence is seen by many investors as a reassurance that economic management remains on the right track. But the fund's pushing Indonesia to pursue unpopular reforms-such as recent reductions in fuel and food subsidies-in return for aid angers nationalist politicians. Indonesia's upper house of parliament recently passed a resolution demanding the government not extend the current IMF borrowing plan when it expires. While the resolution isn't binding, political analysts say Ms. Megawati can't ignore it in the run-up to 2004 election. Anton Gunawan, a Jakarta-based economist for Citibank, sees just a "50-50 chance" that the IMF will remain in Indonesia after the expiry of its current program. On the other hand, he notes, it is unlikely Jakarta will be able to repay about $3.4 billion in foreign debt coming due in 2004 unless it arranges a new restructuring agreement with the Paris Club, the group of industrialized countries that help finance the government with low-interest loans. The Paris Club normally won't provide an aid package unless Indonesia agrees to keep an IMF-led reform program in place. --Mr. Mapes is a staff reporter in The Wall Street Journal's Jakarta bureau. Write to Timothy Mapes at tim.mapes@wsj.com Updated October 28, 2002