Indonesia makes steady economic recovery<\/p>\n
Boediono, Jeju Island, South Korea<\/p>\n
Among countries in this region, Indonesia has been hit by the
\n1997 crisis hardest and longest. In the past three years or so,
\nhowever, the country has been slowly but steadily pulling itself
\nout of the crisis.<\/p>\n
The year 2003 represented another step on the road to
\nrecovery. Prudent fiscal and monetary policy had contributed a
\ncontinued deceleration in inflation and interest rates while the
\nexchange rate strengthened and stabilized. This pattern continued
\ninto the first quarter of 2004.<\/p>\n
These strengthening fundamentals generated some acceleration
\nin growth in 2003, which was 4.1 percent compared to 3.7 percent
\nin 2002 and 3.3 percent in 2001.<\/p>\n
The sources of growth had been consumption and, more recently,
\nexports, while investment continued to be weak. There are a
\nnumber of reasons for the poor investment performance, but the
\nmost serious may be the uncertainty around the outcome of the
\nelection.<\/p>\n
The legislative election was concluded successfully in April.
\nNow a very competitive presidential race is getting under way. A
\nfirst-round election is set for July 5 and the runoff on Sept. 20
\nif one of the candidates does not receive more than 50 percent of
\nthe votes.<\/p>\n
Indications so far are giving us confidence that the process
\nwill go well and that the improvements to the electoral system
\nwill yield a stronger accountable government and parliament.<\/p>\n
However, our reform agenda is too pressing to wait for the
\nresults of the election. Last year the government issued a White
\nPaper that provides a detailed macroeconomic and structural
\nreform strategy for 2003 and 2004.<\/p>\n
Key recent reform accomplishments include the establishment of
\na National Export and Investment Team chaired by the President
\nand tasked with addressing critical obstacles.<\/p>\n
In April a one-roof licensing service was created to speed up
\ninvestment approvals. With the assistance of the donor community,
\ntax and customs reform, which was begun last year, continues to
\nprogress, and a reorganization of the Ministry of Finance to
\nenhance budgeting and treasury operations is getting under way.<\/p>\n
We will shortly submit new tax legislation to the House of
\nRepresentatives with provisions we believe will spur investment
\nand job creation.<\/p>\n
On the critical governance agenda, the Anti-Corruption
\nCommittee should be operational shortly and Anti-Money Laundering
\nAgency is now actively investigating cases.<\/p>\n
The outlook is positive. An improving global economy should
\nincrease exports and investment later this year and 2005. We now
\nexpect growth in 2004 to reach close to 5 percent, and inflation
\nwill be below 6 percent. This will set the stage for a pick-up in
\ngrowth and continued stability in 2005.<\/p>\n
Next year, we project growth will be 5 to 5.5 percent,
\ninflation in the 5 percent range and short-term interest rates
\naround 7 percent.<\/p>\n
With our recovery back on track, Indonesia is now at or close
\nto pre-crisis poverty levels. We will use this momentum to not
\nonly meet but exceed the Millennium Development Goals and we look
\nto ADB to support our effort.<\/p>\n
For our part we intend to implement a Poverty Strategy that
\nprovides a comprehensive framework and focus for anti-poverty
\nactions.<\/p>\n
We would like to commend ADB in its efforts to develop new
\nfinancial and developing instruments that can assist governments
\nand private sectors to find a longerterm local currency financing
\nfor infrastructure and other projects.<\/p>\n
This effort dovetails with our macroeconomic strategy to bring
\ndown long-term interest rates to spur private investment while
\nbuilding more active and efficient capital markets.<\/p>\n
We look forward to working with ADB on this and hope this
\neffort will result in an attractive product for long term local
\ncurrency financing.<\/p>\n
We are very pleased to learn that the Asian Development Fund
\n(ADF) negotiation has come to a successful conclusion. This will
\nenable ADB to enhance its efforts to combat poverty.<\/p>\n
The writer is Indonesia's minister of finance. This article
\nwas condensed from a speech he delivered at the annual meeting of
\nthe Asian Development Bank in South Korea last week.<\/p>",
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