A better outlook<\/p>\n
The verdict of economists is virtually unanimous. Despite the
\ntough challenges -- strong inflationary pressures and high
\ninterest rates -- the economic outlook for next year is brighter
\nbecause the foundations for stability are now in place.<\/p>\n
True, the government has conceded, and most analysts also
\nagree, that the 6.2 percent economic growth target next year is
\nfar too optimistic. They predict an expansion of between 5.3
\npercent and 5.7 percent, compared to an estimated 5.3 percent for
\nthis year.<\/p>\n
However, the government has learned good lessons from the
\neconomic turbulence in the latter part of 2005, correcting big
\nmistakes that damaged the market's confidence in the Cabinet's
\neconomic team.<\/p>\n
The economy actually performed robustly during the first six
\nmonths (October 2004-March 2005) of President Susilo Bambang
\nYudhoyono's administration, with gross domestic product growing
\nby 6.65 percent on a yearly basis in the fourth quarter of last
\nyear and by 6.12 percent in the first quarter of this year. The
\nquality of growth also increased significantly as the prime
\ndrivers shifted to investment and exports. Investments grew by 15
\npercent during the first quarter, as evidenced by a robust 40
\npercent increase in capital goods imports, and exports expanded
\nby 13 percent.<\/p>\n
Evidencing the political courage to cut fuel subsidies, part
\nof its larger determination to continue fiscal consolidation, the
\ngovernment's decision led to an average 29 percent hike in fuel
\nprices in March. The market reacted positively to this policy,
\nhowever, and also to the work of the central bank to control
\ninflation and defend the rupiah.<\/p>\n
However, as the government sat back and international oil
\nprices continued to rise, to a high of US$70\/barrel by the middle
\nof the year, the market became increasingly nervous about the
\ngovernment's ability to manage the budget.<\/p>\n
Market perceptions of the President's economic team dropped to
\nnew lows after evidence emerged Cabinet members may have abused
\ntheir positions of authority for personal gain. They went even
\nlower when public disagreements between leading officials looked
\nto jeopardize the coordination of policy. The government's
\nproposal on Aug. 16 for an extremely irrational 2006 budget was
\nthe last straw.<\/p>\n
The market immediately punished the government, attacking the
\nrupiah, pushing it down to a five-year low of Rp 12,000 to the
\ndollar in early September and setting off a stronger wave of
\ninflationary pressures.<\/p>\n
Though rather late, the government did act boldly in early
\nOctober to slash the fuel subsidies again, this time raising fuel
\nprices by more than an average of 125 percent. In one stroke, the
\ngovernment restored market confidence in its policy making,
\nreducing pressures on the rupiah and reviving a productive circle
\nwithin the economy.<\/p>\n
Confidence in economic management received another boost this
\nmonth after Susilo installed a new, solid economic team led by
\nchief economics minister Boediono. This also ensured stronger
\ncoordination between fiscal and monetary authorities because the
\ncore members of the new team and the central bank's board of
\ngovernors consist of like-minded professionals with a strong
\nsense of mutual trust.<\/p>\n
Good coordination becomes even more vital for stemming another
\nnew wave of economic turbulence next year -- as the government
\ncontinues to cut fuel subsidies despite the strong inflationary
\npressure -- at least until June. A good balancing act is needed
\nbetween the government, which manages supply, and the central
\nbank, which manages demand.<\/p>\n
However, strengthening stability is not the only pressing task
\nconfronting the government. Reinvigorating the microeconomy is
\nequally vital, requiring quick reform in important areas like
\ncustoms, taxation and in basic infrastructure to encourage new
\ninvestment.<\/p>\n
For only new investment will generate jobs -- and purchasing
\npower -- for the millions of people who have suffered from the
\nOctober price hikes.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/a-better-outlook-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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