An ounce of prevention<\/p>\n
One should not read too deeply into the note of caution about
\nIndonesia's macro-economic stability and growth, which was
\nwritten by Bank Indonesia's (central bank) Governor Soedradjad
\nDjiwandono on Tuesday, or become apprehensive about the upcoming
\neconomic trends.<\/p>\n
Certainly, we have to take some precautions, especially
\nbecause two of the three variables that will affect the
\nIndonesian economic situation -- oil prices, import expansion and
\nyen rate volatility -- are regrettably beyond our control.<\/p>\n
We think Soedradjad's warning is also quite opportune in view
\nof the rise in international oil prices over the last few weeks,
\nwhich has gone as high as US$20 per barrel. This encouraging
\ntrend might bring about a sense of complacency regarding the
\nconstant need for a tight fiscal and monetary policy.<\/p>\n
We should be especially cautious in reading the latest oil
\nprice movements because these trends have not entirely been
\ncreated by the law of supply and demand. In fact, we see that the
\nsharp price increase is mostly a result of production problems in
\nNigeria, Yemen, Angola and Venezuela because of various forms of
\nlabor and domestic unrest.<\/p>\n
Even though the proportional role of oil and natural gas in
\nthe state budget has indeed declined to as low as 21.50 percent
\nof total internal revenue, we should not underestimate the impact
\nof the international oil market. As Soedradjad rightly observed,
\nour concern over a drop in oil prices is not linked to their
\nimpact on government revenue but on the psychological impact it
\nwould have on business confidence and the people's expectations
\nabout the economic future.<\/p>\n
Though the possibility of the oil prices declining below $16
\n-- the average price used for oil and gas receipt projection for
\nthe current fiscal year -- is quite remote, we must still take
\nprecautions to provide for such a development. This is especially
\nimportant because of the severe constraints we are encountering
\nwithin the balance of payments due to the heavy foreign debt
\nservice burdens.<\/p>\n
We have no intention sounding the alarm about the impact of a
\ndepressed oil market. But the possible psychological impact, as
\nhinted by Soedradjad, might have far-reaching repercussions upon
\nthe monetary stability. Past experience shows that sharp oil
\nprice declines always sets off currency speculation and, given
\nIndonesia's open capital account system (free foreign exchange
\nregime), such development might cause monetary instability.<\/p>\n
The second variable mentioned by Soedradjad, the volatile yen,
\nis also out of our hands. However, this factor also may strongly
\ninfluence our economic situation because more than 40 percent of
\nour $83.3 billion in foreign debts are denominated in the
\nJapanese currency, while the prices of our oil and natural gas
\nare set in the American dollar.<\/p>\n
We take Soedradjad's caution about the dangers of excessive
\nexpansion in imports as a warning against the implementation of
\nmany big projects which have a long gestation period. There
\nseems to be a misunderstanding regarding big projects: Many
\nbusinessmen assume that since they are private ventures their big
\nimports do not in any way affect the macro-economic situation.
\nThey apparently do not realize that their big imports also put
\nsevere pressures on the overall balance of payments. Hopefully,
\nthe ministerial team in charge of overseeing foreign commercial
\nborrowing by the public and private sector continue to tightly
\nmanage new debts.<\/p>\n
Though the trends so far do not give us anything to be alarmed
\nabout, Soedradjad's note of caution still serves as a much-needed
\nreminder both to the government and private sector on the safe
\nway to manage the economy. The old adage still rings true, that
\nan ounce of prevention is worth a pound of cure; adequate
\nprecautionary measures will prepare Indonesia to contain the
\ndamage from any adverse developments caused by uncontrollable,
\nexternal factors.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/an-ounce-of-prevention-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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