Economy wobbling<\/p>\n
Declining inflation and interest rates seemed to be the only
\nencouraging news in the economic field that President Megawati
\nSoekarnoputri could show off in her first annual progress report
\nto the People's Consultative Assembly on Thursday as almost all
\nother key indicators pointed to a bleaker outlook.<\/p>\n
Economic growth in terms of gross domestic product, on an
\nannual basis, was only 2.15 percent in the first quarter (the
\nlatest figures available), much lower than 3.4 percent in 2001
\nand 4.8 percent in 2000. That was miserably far below the minimum
\n6 percent economic expansion needed to absorb the estimated 2.5
\nmillion new job-seekers who enter the labor market annually, not
\nto mention the 40 million currently unemployed or under-employed.<\/p>\n
Consumer spending, one of the two main drivers of growth, is
\ndecreasing as consumers became more pessimistic about the
\neconomic outlook. For example, retail sales growth slackened to
\n15 percent in the first quarter from 32 percent a year earlier.
\nThe latest reports paint a grimmer picture. Exports, the other
\nengine of growth, were down 6.73 percent in the first six months.<\/p>\n
Investment remained depressed. Worse still, an increasing
\nnumber of manufacturing companies, including those around
\nJakarta, have relocated to other countries which offer better
\nbusiness environments.<\/p>\n
President Megawati rightly cited the main causes of all these
\neconomic woes: Legal uncertainty and policy inconsistency.<\/p>\n
Certainly, businesspeople will not invest with uncertainty in
\nthe law because a market economy cannot function properly and
\nproperty rights cannot be upheld without strong law enforcement.
\nAfter all, markets work on trust, knowing that every market
\nplayer plays by the same business rules. Policy inconsistency
\nraises business risks and transaction costs, thereby making
\nbusinesses uncompetitive and making the environment inimical to
\nsound banking operations.<\/p>\n
Low-cost, abundant labor, one of the main attractions to
\ninvestment in the country, has now been turned into a hurdle for
\nbusiness because of too rigid, anti-business labor regulations.
\nAn increasing number of footwear and textile companies have cried
\nout about losing orders to other countries such as Vietnam,
\nChina, India and Bangladesh.<\/p>\n
Our abundant natural resources such as minerals, fisheries,
\nplantations and timber, which over the past three decades had
\nattracted billions of dollars of investment, are now in limbo due
\nto imbroglios caused by complications in the start-up
\nimplementation of regional autonomy.<\/p>\n
Worse still, political stability that had improved
\nsignificantly since last August is now in danger of plunging into
\nan abyss due to the uncertainty about the proposed constitutional
\namendments in the Assembly.<\/p>\n
Despite this bleak, overall outlook, the situation is by no
\nmeans hopeless, provided the three branches of government are
\nunited and determined in managing this critical condition with a
\nhigh sense of urgency and the right set of priorities.<\/p>\n
President Megawati, as chief of the executive branch, should
\ndemonstrate strong leadership and her Cabinet should be able to
\nprovide good management and coordination of all the reforms badly
\nneeded to restore the economy to a sustainable level.<\/p>\n
The government has set an appropriate scale of priorities in
\neconomic, judicial and political reform. The only problem is
\nhaphazard execution not only due to problems within the executive
\nbranch but also because of the virtual absence of a sense of
\ncrisis within the judicial and legislative branches of the
\ngovernment.<\/p>\n
They should realize that the government, weighed down by more
\nthan US$135 billion of foreign and domestic debts or almost 100
\npercent as large as the gross domestic productthis means either
\nas large as... or twice as large as...., and debt service burdens
\nalready taking more than one third of its operating budget,
\ncannot be expected to provide pump-priming for the economy.<\/p>\n
Without the creation of new jobs, the huge pool of unemployed
\nand under-employed could explode into social anarchy, whereas
\njobs can be generated only by new investment.<\/p>\n
Therefore, without significant progress in bank and corporate
\ndebt restructuring, the reform and privatization of state
\ncompanies and the recovery of assets currently managed by the
\nIndonesian Bank Restructuring Agency and legal and governance
\nreform the macroeconomic condition will remain fragile and the
\nrecovery process will never gain a strong footing.<\/p>\n
As we have often argued in this column, a faster pace of asset
\nrecovery will reinvigorate thousands of companies through the
\ninfusion of new capital and management by new investors (new
\nowners).<\/p>\n
An accelerated process of debt restructuring will enable
\nthousands of businesses to regain access to new working capital
\nloans in order to increase their rate of production. Equally
\npositive impacts will accrue from the privatization of selected
\nstate companies as new investors will improve their efficiency
\nand proceeds from the sales will help cover the budget deficit.<\/p>\n
The Assembly members who are convening their annual meeting
\nshould realize how critical the situation is now.<\/p>",
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