Efforts to Overcome Economic Crisis in 1998

Since the last quarter of 1997, the economic situation in the country after three decades of relatively stable development. Even Indonesia has been praised as one of the economic tigers of Asia.
The monetary turmoil hits several Asian countries, the value of their currencies drops in an unbelievable level, around 50% to 60% towards U.S. dollars, only in several months. At present, Indonesia is also facing the same problem as its neighboring countries.

Economic Consolidation

The government is trying hard to stop this unfavorable situation by consilidating some economic measures. It has also gained support form the International Monetary Fund (I.M.F) to reform its devastating economy.

Some figures in 1998

Indonesian balance of payments (US$ million)
Description		1996-97 (actual)	1997-98 (estimate)	1998-99 (projection)
1	Export (FOB)	52,038	54,605	59,484
	a. Oil	7,513	6,387	5,348
	b. Liquefied natural gas	5,258	4,632	4,884
	c. Non-oil and non-gas	39,267	43,586	49,252
2	Import (FOB)	-45,819	-45,957	-48,067
	a. Oil	-4,423	-3,533	-3,067
	b. Liquefied natural gas	-270	-271	-318
	c. Non-oil and non-gas	-41,126	-42,153	-44,682
3	Services	-14,288	-14,990	-16,813
	a. Oil	-1,831	-2,087	-2,233
	b. Liguefied natural gas	-1,710	-2,316	-2,168
	c. Non-oil and non-gas	-10,747	-10,587	-12,412
4	Current account	-8,069	-6,342	-5,396
	a. Oil	1,259	767	48
	b. Liquefied natural gas	3,278	2,045	2,398
	c. Non-oil and non-gas	-12,606	-9,154	-7,842
5	Special drawing right	0	0	0
6	Official capital	5,298	13,147	9,051
	a. Program aid	0	7,572	3,800
	b. Project aid and other	5,298	5,575	5,251
7	Dedt repayment (principal)	-6,118	-4,884	-4,789
8	Other capital	13,488	3,169	2.210
9	Total (4 to 8)	4,599	5,090	1.076
10	Erros and omissions	-701	-4,615	0
11	Monetary movement	-3,898	-475	-1.076
	Note :
	Current account against GDP (%)	-3.5	-2,7	-2.6
	Dedt Service Ratio (%)
	Government	14.6	12.0	10.9
	National	34.2	37.7	37.4

In the balance of payment, despite the economic crisis, the government has $ 1 B of surplus.

1997-98 state budget and draft 1998-99 state budget (Rp billion)
REVENUES		1997-98	1998-99	% change	EXPENDITURES		1997-98	1998-99	% change
A.	DOMESTIC REVENUES	88,060.7	107,687.9	22.3	A.	ROUNTINE EXPENDITURE	62,158.8	92,384.0	48.6
I.	Oil and natural gas	14,871.1	27,286.4	83.5	I.	Civil services	21,192.0	21,887.4	3.3
	1. Oil	10,688.2	18,869.7	76.5		1. Salaries/pension	17,148.4	17,405.7	2.1
	2. Natural gas	4,182.9	8,416.7	101.2		2. Rice allowances	1,309.5	1,323.5	1.1
II.	Non-oil and non gas	73,189.6	80,401.5	9.9		3. Food allowances	1,233.7	1,237.0	0.3
	1. Income tax	29,117.7	26,337.0	-9.5		4. Other benefits	1,009.9	1,154.6	14.3
	2. Value added tax	24,601.4	27,830.0	13.1		5. Diplomat services	590.5	766.6	29.8
	3. Import duties	3,321.7	3,179.8	-4.3	II.	Goods procurement	8,895.2	10,738.9	20.7
	4. Excise tax	4,436.3	4,649.6	4.8		1. Domestic	8,478.0	10,059.7	18.7
	5. Export tax	100.0	110.0	10.0		2. External	417.2	679.2	62.8
	6. Property tax	2,505.0	3,411.0	36.2	III.	Sudsidies to regions	11,535.8	12,283.9	6.5
	7. Other taxes	632.5	540.0	-14.6		1. Personnel expenses	10,967.8	11,600.7	5.8
	8. Non-tax receipts	8,225.8	14,344.1	74.4		2. Non-personnel expenses	568.0	683.2	20.3
	9. Fuel sales profit	249.2	0.0	-100.0	IV.	Debt Service Payment	19,570.9	32,086.7	64.0
						1. Domestic	334.2	1,846.7	452.6
						2. External	19,236.7	30,240.0	57.2
					V.	Other expenditures	964.9	15,387.1	1,494.7
B.	DEVELOPMENT REVENUES	13,026.0	25,804.0	98.1		1. Petroleum subsidies	0.0	10,077.6	0.0
I.	Program aid	-	6,800.0	0.0		2. Others	964.9	5,309.5	450.3
II.	Project aid	13,026.0	19,004.0	45.9	B.	DEVELOPMENT EXPENDITURES	38,927.9	41,107.9	5.6
					I.	Rupiah financing	25,901.9	22,103.9	-14.7
					II.	Project aid	13,026.0	19,004.0	45.9
	TOTAL	101,086.7	133,491.9	32.1		TOTAL	101,068.7	133,491.9	32.1

The government set Rupiah at 4000 to US dollar (The market rate is US 1 = Rp. 7250 at January 6,1998, before the crisis it was only Rp. 2500 / US$). The wild fluctuation of Rupiahs was due to psychological influence by negative market sentiments.
The high ranking officials in finance believe that the fundamentals of Indonesia's economy are basically sound. The central bank foreign exchange reserves totalled about US 20 Billions, enough to finance five months of import. The capital inflows of US $ 9.05 billions should include the support of IMF US $2.4 billion; US $ 1.4 billion foreign loans and US $ 5.25 billions in project loans from countries grouped in the C.G.I. (Consultative Group for Indonesia).
It expects a growth of export totaling US $ 59.48 billions where the share of non-oil is projected US $ 49.2 billions.

Potential Market

The export from Indonesia are delivered to :

Regions :

1. Asia Pacific 67.74 %
2. Europe 18.99 %
3. Middle East 5 %
4. South East Asia 2.3 %
5. Africa 1.9 %
6. Latin America 1.7 %
7. East Europe 0.59 %
8. Other 1.4 %

Countries :

1. USA 24.38 %
2. Japan 21.40 %
3. Singapore 17.50 %
4. Hong Kong 6.8 %
5. The Netherlands 6.4 %
6. U.K 4.9 %
7. China 4.6 %
8. Malaysia 4.5 %
9. Korea 4.1 %
10. Germany 5.1 %

Potential Products

There are increments in export of:

Forestry products, gold and silver, coconut and Palm oil, textile, wood and electronics.

Other main export goods are:
Feed, Rottan, Sporting, music, educational and toys , chemicals, processed rubber, plastic, steel, machinery and automotive, crafts, lead and copper, footwear and leather, ceramic, marble and glass, aluminium etc.

The country is potential with its natural resources such as oil and natural gas.

Foreign Investment (to Nov. 1997)

No.	Countries	Projects	Value in Million US $
1.	Japan	994	39.967.1
2.	U.K	234	33.344.9
3.	Hongkong	366	18.571.1
4.	Singapore	692	18.243.2
5.	U.S	281	14.061.9
6.	Taiwan	594	13.254.9
7.	Netherlands	174	11.544.9
8.	Korea	476	10.234.3
9.	Germany	115	8.888.5
10.	Australia	280	8.467.7
11.	Malaysia	197	5.734.4
12.	Bahama	7	2.903.8
13.	Luxemburg	4	2.692.9
14.	Thailand	30	2.304.1
15.	France	66	2.149.8

Foreign Banks - Creditors

The Bank for International Settlements (BIS) shows the list of the banks-creditors to Indonesia by the mid of 1997 in billions US $. Germany 5.6 France 4.8 U.K 4.3 Netherlands 2.8 Belgium 2.9 Italy 0.2

Reformation

To gain back the confidence from home and abroad some measures have been taken and should be taken to consolidate many aspects of economic life, among other:

• Support from IMF for economic reform
• Closure of 16 ailing banks
• The decision to merger some state banks
• Appointment of some economic experts to solve with the problem reported directly to the president
• The government has assured to pursuing the appropriate economic policies, such as reform, deregulation, improving efficiency in production and distribution, encouraging healthy business practices etc.

Present Development

1. Several noted figures in the country, in response to the sharp fall of Rupiahs in the second week of January 1998 which became US$ 1-equals to more than Rps. 10.000 (the rate before the crisis of mid 1997 was US$ 1 = Rps. 2500 ). Launch a campaign to "love Rupiah" by changing their US$ to Rupiah. They call other cizitens who love the country to join this drive.
2. On Sunday the 11th of January 1998, the Team of IMF, led by first Deputy Managing Director, Stanley Fischer held the first discussion with some Indonesian Ministers in the Ministry of Finance to help defuse the monetary crisis.

Fischer said, that there was some way to go in resolving the financial crisis.

US $ 43 billion Rescue package from I.M.F.

The President of Indonesia, Suharto, has signed a letter of internt on January 15,1998, pledging to the I.M.F to carry out economic reforms to try to end the countries economic crises.
The I.M.F Managing Director, MICHEL CAMDESSUS said that he is confident that if the program is implemented with determination and commitment, Indonesia should be able to soon begin to overcome its economic crisis.

The letter contains 50 points of memorandum detailing the measures the government plan to introduce, among other are:

1. Reviewing the draft budget of 1998/1999 to be more realistic.
2. Gradual elemination of fuel and electricity subsidies starting on April 1, 1998.
3. Discontinuation of special taxes and credit privileges to National Car project and I.P.T.N (airplane industry).
4. Amendment of banking law by tightening banking rules to be more solid among other by merging some states and also private banks and to lift restrictions on branching of foreign banks by February.
5. Limiting Bulog (National Logistic Agency) monopoly to rice only.