Fri, 18 Aug 2006
Economists cautiously welcome budget targets

Andi Haswidi, The Jakarta Post, Jakarta

While maintaining that the government's economic performance in 2006 has been less than satisfactory, a number of well-known Indonesian economists say that the economic targets and programs proposed by the President in his state of the nation address are realistic and achievable.

Faisal Basri and Hadi Susastro concurred that the 6.3 percent growth target set for next year was quite realistic given the current state of the country's economy.

Known for his frequent criticism of the government's economic policies, Faisal described the growth target of 6.3 percent as being within "the country's economic capacity".

"However, the target will be achievable only if the government promotes the real sector so that it can grow by between 6 and 7 percent, instead of what we had in the first half of 2006, when it grew by only 3 percent," Faisal told The Jakarta Post.

In his annual address to the House of Representatives on the eve of Independence Day, President Susilo Bambang Yudhoyono said that he was optimistic the economy would grow by 6.3 percent next year.

In his address, in which he also presented the broad outlines of the 2007 draft budget, the President said that with more stable economic conditions, inflation would be contained at 6.5 percent, much lower than this year's target of 8 percent.

In the 2007 draft budget, the government is set to maintain its assumed exchange rate for the rupiah against the dollar at Rp 9,300, while the crude-oil-price assumption will be raised by 8.3 percent to US$65 per barrel from this year's $60 per barrel.

"As the real sector contributes at least 30 percent to our total GDP, its growth will have a significant impact on overall economic growth," he said, adding that growth in the real sector would be able to significantly reduce unemployment and improve purchasing power.

According to Faisal, another prerequisite for the attaining of the growth target was higher investment.

"The government has to prove that its talk about increasing investment in Indonesia is more than just semantics. Thus far, they have failed to do that," he said.

Hadi Susastro, former head of economic think tank, the Center for Strategic and International Studies (CSIS), agreed that improving the investment climate was key to higher growth, and that this could best be done by overhauling investment policy.

"Indonesia has the potential to achieve the economic targets but there has to be strong economic leadership on the government's part," Susastro told the Post.

He said that the government had failed to stand up to the labor movement with the result that the opportunity to improve the investment climate by amending the labor legislation had been lost.

"Fiscal stimuli and lower interest rates are not enough to boost the economy if nothing is done to improve investment," he said.

Indonesian Chamber of Commerce and Industry chairman M.S. Hidayat agreed that it was essential that there be strong national leadership capable of ensuring political stability.

"The government has to work better with parliament as the lawmaking and amendment processes necessary to support their economic programs are highly dependent on that," said Hidayat.

Hidayat also said that in order to achieve 6.3 percent growth, the government would need to have the political will to facilitate the real sector as it was this sector that contributed 70 percent of the state's total revenues.

House of Representatives finance commission chairman Awal Kusumah argued that the government had done little to promote the real sector.

"The government has to be more focused on its targets. If we want to talk about growth, then we have to focus on the real sector," he said, echoing Hidayat.

"If these failures persist, then it is highly unlikely that we will achieve 6.3 percent growth," he said.

Standard Chartered economist Fauzi Ikhsan commented on the government's failure to fulfill its spending plans, which had delayed progress in bringing the country's infrastructure into the 21st century.

"If this situation persists, then I don't see how the government will achieve its economic targets," he said.

However, Chatib Basri, deputy head of the LPEM UI -- a university economic research institute -- was more upbeat.

"Judging from declining inflation, which it is estimated will come in at 8 percent by the end of the year, I think the 6.5 percent target is not overestimating it," Chatib said.

In his speech, President Susilo vowed to help the poor by instituting special programs in all districts in Indonesia that will allow the disadvantaged to actively work to improve their economic circumstances

In response, however, all the analysts agreed that there had to be a move away from cash payments to the poor toward the creation of sustainable jobs.



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