The Press WEDNESDAY, JANUARY 25, 1967. Indonesia’s Road Back

Press, Volume CVI, Issue 31277, 25 January 1967, Page 12

The Press WEDNESDAY, JANUARY 25, 1967. Indonesia’s Road Back

While the fate of Dr. Sukarno, the wrecker of Indonesia's economy, awaits determination in Djakarta, the problem of restoring the nation’s solvency is receiving constant study, though relatively little is heard of it A few days ago the Minister of Finance, Mr Seda, said that Indonesia, since the ending of confrontation with Malaysia, had received more credit offers than it could use. Talks to be held in Amsterdam next month, he indicated, would mainly concern the use to which these credits could be put, presumably for the expansion of production, both primary and secondary, in the maze of islands comprising the republic. Earlier meetings of creditor nations, held in Tokyo, Paris and London, resulted in a rescheduling of arrangements for debt repayment on terms more realistic in relation to Indonesia’s ability to pay.

The Indonesian foreign debt amounts to approximately £lOOO million —roughly half of it to the non-Communist world, the remainder almost entirely to Russia, for warships and aircraft bought by Dr. Sukarno when his empire-building frenzy was at its highest. The Tokyo meeting of the main non-Communist creditors, held last September, perhaps unwittingly did Indonesia a service by agreeing in principle to postpone repayments for further consideration at meetings in Paris and London. The Russians had been demanding immediate repayment in full. This was the gloomy announcement that the Foreign Minister, Mr Malik, brought back from a visit to Moscow in October. Then, without explanation, that decision was changed. A financial mission which followed Mr Malik to Moscow was able to report that agreement had been reached for the rescheduling of the debt, or most of it, over a period of 13 years. What happened, apparently, was that the Western offer of postponement brought to the Russians the realisation that if they persisted in their “ hard cash ” attitude, Indonesia would have to default. The Russians, in that event, would not only have lost their money: they would also have forced the Indonesian Government into the anti-Communist camp.

In the meantime, discussions have been carried on in Djakarta concerning the best use that might be made of new credits, including assistance from the International Monetary Fund. There have also been proposals for the restoration of confiscated foreign capital to its original owners. In Britain’s case, some £l3 million is involved. The Indonesia Association, representing a majority of British interests expropriated by decree at the end of 1964, took part in the Tokyo talks. The companies mainly interested were then invited to Djakarta to discuss compensation, or an alternative arrangement whereby they might resume the operation of lost businesses.

The main concern of the Government in Djakarta in recent months, with the debt repayment problem temporarily off its hands, has been to introduce administrative reforms and to halt chronic price inflation. There is now strict control of credits. Tax procedures have been overhauled to increase State revenue. More important, a bid is being made to lift production from State enterprises, estimated in January to be operating at no more than 20 per cent of capacity. These various processes, it is realised, will take time and will involve a purge of corrupt and inefficient civil servants, as well as a sharp reduction in the number employed. It has been estimated that in the grossly inflated bureaucracy built up under Dr. Sukarno, the same amount of work could be done by a staff one-twelfth the size of that engaged. It is not surprising that ‘ retrenchment” and “reform” are words that loom large in proposals for the reshaping of domestic policy. The pace of recovery will obviously depend in large measure on the determination with which current problems, involving the use of manpower as well as foreign credits, are tackled by Indonesia’s new rulers.