Business plans in disarray amid vague economic vision<\/p>\n
Weakness in national leadership has had a more negative impact
\nthan positive impact, according to some economists. The Jakarta
\nPost's contributor Rikza Abdullah talked to Djisman S.
\nSimandjuntak, executive director of Prasetya Mulya business
\nschool, who shared his thoughts on the economic vision of
\nPresident Megawati Soekarnoputri's administration.<\/p>\n
Question: Would you say the government lacks commitment to
\npolicy reform?<\/p>\n
Answer: The government apparently has no intention to make
\npolicy reform and has no clear direction in its economic
\npolicies. The business community, therefore, cannot move forward
\nand make accurate business plans.<\/p>\n
Radical policy reform and the redesigning of the basic
\narchitecture of economic policies are very important for the
\ncountry to respond to radical changes in the world economy.<\/p>\n
Globalization has made it possible for investors to move their
\nfunds -- in the form of either portfolio or direct investments --
\nfrom one country to another, drastically altering business
\ncompetition. Former closed-market countries like China and those
\nin Eastern Europe have now opened their markets.<\/p>\n
So, we need open, market-driven economic policies supported by
\nthe business community.<\/p>\n
Does this mean that Megawati's government has no clear vision
\nin its economic policies?<\/p>\n
Look what's happening in the privatization of state firms.
\nPart of the privatization process has been hampered by protests
\nby local authorities seeking democratization in the economy. If
\nthe government had a clear vision, it would have been able to
\nfind a legitimate form of privatization in line with economic
\ndemocratization.<\/p>\n
What has caused this lack of vision? Is it because of
\nMegawati's choice of economic advisers?<\/p>\n
Her aides actually include senior consultants Ali Wardhana and
\nWidjojo Nitisastro. They became great (several years ago) because
\nthey then worked under the strong leadership of former president
\nSoeharto. If they now perform poorly, it is probably because they
\nare working under the weak leadership of Megawati.<\/p>\n
Her lack of leadership can be seen from the recent conflict
\namong her ministers on Indonesia's cooperation with the
\nInternational Monetary Fund. Another indication of her weak
\nleadership is the prolonged legal uncertainty caused by very poor
\nlaw enforcement.<\/p>\n
What are the good points of her leadership?<\/p>\n
She has acted positively in the development of monetary
\naffairs, banking and the state budget. She's been able to
\nstabilize the rupiah's exchange rate. This is related to
\nimprovements in the balance of payments due to the return of
\ncapital to Indonesia, which flew out of the country during the
\ncrisis.<\/p>\n
The rupiah's stability has helped curb inflation, even though
\nthe year-on-year inflation rate is still in double digits.<\/p>\n
A positive development in banking has been the improvement in
\nthe health of banks' operations after the sale of part of their
\nassets by the Indonesian Banking Restructuring Agency (IBRA).<\/p>\n
As for the state budget, Megawati's administration has been
\nable to reduce its budget deficit by reducing subsidies.<\/p>\n
And the shortcomings?<\/p>\n
The long list includes slow economic growth, high
\nunemployment, the decline in exports and imports, weak investment
\npromotion, the slow disposal of assets by the IBRA, slow
\nprivatization, the absence of progress in dealing with bad
\ndebtors and the eradication of corruption, poor law enforcement,
\nthe poor management of security and the lack of commitment to
\nreforming policies.<\/p>\n
Could you elaborate?<\/p>\n
Our economy grew by 2.5 percent during the first half of this
\nyear, far lower than the annual 4 percent growth in 2000. The
\ndecline of exports and investment indicates that economic growth
\nis supported by domestic consumption. We cannot continually rely
\non this because so far we do not know where consumers get their
\nmoney from. Most probably, the money is from the liquidation of
\ntheir assets.<\/p>\n
We need export-led economic growth because we are in dire need
\nof foreign exchange earnings to service external debts and to pay
\nobligations related to foreign investments. True, the decline of
\nexports was partly caused by the slowdown of the world economy,
\nbut we would have been able to boost our exports if we had
\ndirected past investments to export-oriented industries, instead
\nof projects destined for the local market.<\/p>\n
The decline of imports (by 25.8 percent in the first quarter
\nof this year and by about 5 percent in the second quarter,
\naccording to the latest quarterly report of Bank Indonesia) also
\nindicates the slowdown of investment activities, which
\ntraditionally rely mostly on imports of machinery and
\nintermediate products.<\/p>\n
The combination of the decline in investment and exports has
\naffected economic growth and worsened unemployment.<\/p>\n
Moreover, the absence of progress in the dealing of bad
\ndebtors and the eradication of corruption, poor law enforcement
\nand management of security have created a bad perception of
\nIndonesia's business and investment environment, particularly for
\nforeign investors.<\/p>\n
What would improve the economy?<\/p>\n
Because the economy is very much affected by debt services,
\nthe government should reduce debts by repaying its debt
\nprinciples. There are three options to obtain funds for their
\nrepayment. First, it could accelerate the privatization of state
\ncompanies and the sales of assets currently held by IBRA.<\/p>\n
Second, it could activate the secondary bond market, so the
\nbonds for the restructuring of banks could be refinanced with the
\ncapital to be generated from the sales of new bonds at the time
\nof their maturity. Third, the government should take bold
\nmeasures to accelerate economic growth, so that the government
\ncan increase revenue from taxation.<\/p>",
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