Mixed economic indicators<\/p>\n
President Megawati Soekarnoputri conceded in a report to the
\nannual meeting of the People's Consultative Assembly last week
\nthat strengthening macroeconomic stability over the past 18
\nmonths had not yet been able to fuel higher economic growth. She
\nforesaw the rate of economic growth this year to be stagnant at
\n3.6 percent, the level of expansion achieved in 2002. That would
\nbe lower than the official growth target of 4 percent.<\/p>\n
The earnings reports of most publicly-traded companies for the
\nfirst half by and large confirmed the feeble economic growth, as
\nevidenced by the decline in their profits despite the gains they
\nreaped from the rupiah's appreciation against the American
\ndollar.<\/p>\n
A survey by the Danareksa Research Institute in June also
\nfound weakening business confidence, as most business leaders
\nsaid they did not expect any improvement in the pace of economic
\ngrowth for the rest of the year.<\/p>\n
The same survey, however, revealed a slight rise in consumer
\nconfidence, even though the general consumer price index, as
\nreported by the Central Statistics Agency for July, indicated a
\ndifferent path of development. Food, beverages and cigarettes
\nposted deflation, reflecting weakening consumer demand. The
\nbureau also reported a 7 percent expansion in non-oil exports for
\nJune but a 15 percent fall in imports.<\/p>\n
These mixed trends further validate the widely held perception
\nthat the overall economic situation remains fragile, highly
\nvulnerable to internal and external shocks.<\/p>\n
Just witness how the rupiah, which had appreciated by almost
\n17 percent throughout last year, so easily lost more than 5
\npercent of its value against the dollar in the last 10 days of
\nJuly alone due largely to the controversial government plan to
\nslap tax on earnings accrued in mutual funds invested in bonds.<\/p>\n
Seen in this context, the government decision last month not
\nto make early repayment of its debts to the International
\nMonetary Fund, as strongly suggested by several Cabinet members,
\npoliticians and economists, is indeed quite wise.<\/p>\n
The US$34 billion international reserves held by Bank
\nIndonesia, though quite large by Indonesian standards, may not be
\nstrong enough to defend the rupiah in case of major currency
\nattacks set off either by internal or external shocks. It is
\nprecisely because of this fragile economic condition that the
\ncountry needs higher foreign reserves to serve as a buffer than
\nwhat would be considered adequate under normal circumstances.<\/p>\n
Of greater concern is the increasing tendency toward weakening
\nbusiness confidence, as further reflected by Bank Indonesia's
\nreports last month that almost Rp 80 trillion in approved bank
\ncredits had not been disbursed.<\/p>\n
Business confidence is quite crucial for fueling economic
\ngrowth because it is businesspeople that take the risks by
\nplowing their capital into economic activities, thereby
\nincreasing tax receipts. It is businesses that create jobs and
\nconsequently generate purchasing power to fuel consumer demand.<\/p>\n
The government and economists already know where the roots of
\nthe problems lie. They share the view that the slow pace of
\nstructural reform is the main cause of persistently weak business
\nconfidence. The delay in instituting reforms, especially in the
\nfinancial, legal and public governance sectors, has caused
\nbusiness risks to remain high.<\/p>\n
Set against this background, there is no further need to
\nemphasize the importance of the reform agenda the government will
\nunveil on Aug. 15 when the President proposes her 2004 budget to
\nthe House of Representatives.<\/p>\n
Certainly, the reform agenda and its technical details, such
\nas implementation schedules and targets, will not be a panacea
\nthat will reinvigorating business sentiment overnight. However, a
\nwell-designed reform mechanism with clear-cut schedules and
\ntargets will provide businesspeople with a clear indication of
\nthe future path of economic policies and development.<\/p>\n
Further down the line, this will enable businesspeople to
\nsensibly assess business risks. After all, business is a game of
\nrisk calculation.<\/p>",
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"sponsor": "Okusi Associates",
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