Improving market perception<\/p>\n
The government's pronouncement that the economy would still be
\nable to achieve 5 percent expansion next year, in spite of the
\nhorrific bomb attack in Bali, could be harmless if it was meant
\nsimply to prevent an inordinately pessimistic climate.<\/p>\n
However, such a persistently upbeat mood could only be self
\ndelusion, false optimism and could even be greatly damaging to
\nthe economy if it is also translated into policy making.<\/p>\n
The blunt fact is that the tragedy has caused a big setback in
\nalmost all sectors and destroyed the momentum for a robust
\neconomic recovery that had actually been created by the
\nstrengthening of macroeconomic stability since early this year.<\/p>\n
First of all, the terror bomb that generated headline news all
\nover the world has increased Indonesia's country and sovereign
\nrisk ratings, which in turn caused negative market perceptions
\nfor its economic prospects and damaged business and consumer
\nconfidence. The immediate costs will likely be big losses in
\nforeign exchange revenues from foreign tourists and in tax
\nreceipts from travel-related businesses with all the negative
\nimpacts on government spending.<\/p>\n
The costs of heightened security and higher risks in the wake
\nof the bomb attack will increase risk premiums on transactions
\nwithin the country and between the country and foreign parties
\nand this will, in turn, impair export competitiveness.<\/p>\n
At a time when exports are expected to contribute more to
\ngrowth to offset the slackening consumer spending, which has so
\nfar been the main locomotive of economic expansion, foreign
\nbuyers might refrain from buying from Indonesia out of fear of
\nfailed or delayed deliveries due to high security risks.<\/p>\n
Even more worrisome, is that the heightened security risks
\nwill consequently increase business risks. This, in turn, could
\ncause more bad loans and turn newly restructured credits sour
\nagain, thereby threatening the fragile banking industry.<\/p>\n
While businesses badly need loans to expand operations, many
\nbanks may become inordinately cautious about any new lending due
\nto fears of worsening capital standards.<\/p>\n
The negative market perception of the economic outlook would
\nalso adversely affect the many reform measures that are badly
\nneeded to fuel a stronger recovery. The biggest toll may be in
\nasset recovery and privatization as foreign investors could shun
\nthe country -- at least until all the questions around the bomb
\nattack are resolved. State-owned Bank Mandiri, for example, was
\nimmediately forced to postpone its initial public offering and
\nthe divestment of many other state-owned assets became uncertain
\namid the bearish market perception.<\/p>\n
All these risks can only be overcome by stronger government
\nleadership in taking decisive policy action to accelerate the
\nimplementation of reform measures and to maintain policy
\ncoherence.<\/p>\n
Only a more rapid privatization and asset recovery,
\naccelerated adoption of structural reform measures and more
\nvigorous tax collection can create a virtuous circle of increased
\nmarket confidence, a stronger exchange rate and declining
\ninterest rate.<\/p>\n
This is, for example, a critical and opportune time to make a
\nfirm decision on the restructuring of all small- and medium-scale
\nbusiness debtors to release them from the bondage of their debts
\nand allow them to thrive in the open market.<\/p>\n
But market confidence is vital because the wellsprings of
\neconomic growth are not just technology, investment and consumer
\nspending. They also include the spirit of risk taking by
\nentrepreneurs.<\/p>\n
However, investors will not be willing to risk their capital
\nin the absence of decisive policy action on the part of the
\ngovernment. Only under strong government leadership,
\ncharacterized by firm and consistent policy action can businesses
\nbe confident enough to weather all the negative pressures from
\nthe heightened security risks, in order that they can be
\noptimistic about the long-term outlook of the economy.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/improving-market-perception-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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