Consistent policy vital to capital inflows<\/p>\n
JAKARTA (JP): Amid concerns over the country's deepening
\ncurrent account deficit, the government needs to maintain its
\ncredibility abroad to attract more capital inflow to cover the
\ndeficit, an analyst argues.<\/p>\n
Hadi Soesastro, executive director of the Centre for Strategic
\nand International Studies, said in a discussion at The Jakarta
\nPost yesterday that the government's ability to maintain its
\ncredibility is key to sustaining economic stability.<\/p>\n
\"The government needs to maintain its credibility to attract
\nforeign capital because in four to five years our account deficit
\nwill still be high,\" Hadi said.<\/p>\n
He said Indonesia's current account deficit in the last fiscal
\nyear could reach US$9 billion, or 4.5 percent of the country's
\ngross domestic product (GDP).<\/p>\n
\"In the past, when an account deficit neared 4 percent of the
\nGDP, the government resorted to the devaluation of the rupiah
\nagainst the U.S. greenback. Now, devaluation is not an option,\"
\nHadi said.<\/p>\n
Hadi's estimate is somewhat higher than the government's
\nprojection of $7.9 billion for last year's current account
\ndeficit. The deficit was $3.49 billion in the 1994\/1995 fiscal
\nyear.<\/p>\n
The government projected that the current account deficit for
\nthe ongoing fiscal year will likely shrink slightly to $6.9
\nbillion.<\/p>\n
Hadi, however, predicted that the current account deficit
\ncould rise to $10 billion this fiscal year, considering that the
\ngovernment is still pursuing high economic growth.<\/p>\n
To cover such a high deficit, he said Indonesia needs
\nsustainable foreign capital inflows, especially from direct
\nforeign investment. To attract more direct investment, the
\ngovernment should be consistent in its economic policies.<\/p>\n
Hadi warned that the government's current policies, which
\nbusinesspeople and analysts have criticized as inconsistent, may
\ndamage Indonesia's credibility abroad and could eventually
\ndiscourage foreign investment.<\/p>\n
The unpopular policies include the favoritism shown to the
\nnational car program, the protection of the ethylene industry,
\nthe establishment of a private foundation to manage poverty
\nalleviation funds, and the formation of PT Dua Satu Tiga Puluh to
\nfund the development of a locally-designed passenger jet.<\/p>\n
\"The national car program is often seen as a case that can
\ndisrupt the government's credibility in terms of the consistency
\nof its economic policies, fair treatment of investors and so
\nforth,\" Hadi said.<\/p>\n
The government decided last February to grant PT Timor Putra
\nNasional, controlled by President Soeharto's youngest son Hutomo
\nMandala Putra, tariff and tax breaks to develop Indonesia's
\nnational car.<\/p>\n
The government has also ruled that Timor Putra will be the
\nonly firm to get the tariff and tax exemptions for the next three
\nyears.<\/p>\n
\"That's a blatant policy,\" Hadi said. \"Even if you have it in
\nmind to give such facilities to one firm, you should not take
\nsuch a blatant stand.\"<\/p>\n
Also in February, the government granted 25 percent tariff
\nprotection to PT Chandra Asri's olefin plant. Only a few months
\nearlier the government stated it would not protect the
\npetrochemical plant.<\/p>\n
The government also told business leaders to help establish
\nPT Dua Satu Tiga Puluh to raise at least $2 billion to finance
\nthe development of a 130-seat jet by the state aircraft
\nmanufacturer PT IPTN.<\/p>\n
Earlier this year, the government called on individuals and
\ncompanies making more than Rp 100 million (US$42,800) a year to
\ndonate 2 percent of their incomes or profits to the privately-run
\nDana Sejahtera Mandiri Foundation, to fund the government's
\npoverty alleviation program.<\/p>\n
The government has extended for three years the clove trading
\nmonopoly held by the Clove Bufferstocking and Marketing Agency,
\nalso headed by Hutomo, without a transparent assessment of the
\nagency's performance.<\/p>\n
\"Such policy changes contain higher risks for investors,\" Hadi
\nsaid, adding that foreign investors will be hesitant to enter the
\ncountry because they cannot predict the business climate. (rid)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/consistent-policy-vital-to-capital-inflows-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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