Private funds still needed 'to lead recovery process'<\/p>\n
JAKARTA (JP): Official loans would have only a short-term
\neffect on Indonesia's economic recovery program and, therefore,
\nthe government should woo private funds to lead the recovery
\nprocess, a noted economist has suggested.<\/p>\n
Mari E. Pangestu, executive director of the Center for
\nStrategic and International Studies, said that private funds
\nwould reenter Indonesia only if the government could guarantee
\nsecurity and order as well as macroeconomic stability.<\/p>\n
\"If we want to speed up the economic recovery process, private
\nfunds must return. Official funds alone would never be enough,\"
\nMari told The Jakarta Post.<\/p>\n
\"If we expect private funds, we must ensure safety and
\nsecurity. In addition, the direction of the government's policy
\nmust be clear and consistent.\"<\/p>\n
She said investors still viewed Indonesia as an insecure place
\nfor investment because lawlessness still prevailed in many parts
\nof the country.<\/p>\n
Political uncertainties also clouded Indonesia's investment
\nclimate. Investors are still reluctant to invest or expand
\nbusinesses here until a new, elected government was in place.<\/p>\n
\"It means that our economic situation will not improve until
\nthe general election in next May,\" she said.<\/p>\n
Even after the general election, investors would still wait
\nuntil the People's Consultative Assembly convenes at the end of
\nnext year to elect a new president and vice president.<\/p>\n
Besides security and political certainty, consistency in the
\ngovernment's economic policies was badly needed to lure private
\ncapital back into the country, Mari said.<\/p>\n
She said the government's policies thus far were still far
\nfrom consistent, especially on the macroeconomic front, which
\nkept investors waiting.<\/p>\n
Both fiscal and monetary policies were often contradictory.
\nFor example when the central bank wanted to tighten money supply
\nthe government expanded its spending to finance subsidized
\nprograms.<\/p>\n
The government seemed to be to absorbed with miltibillion-
\ndollar official funds committed by its donors in the Consultative
\nGroup on Indonesia (CGI) and those arranged by the International
\nMonetary Fund.<\/p>\n
The government has said that it expected to get more than $5.3
\nbillion from CGI members, who are currently meeting in Paris. In
\naddition, the IMF has arranged a bailout fund totaling US$46
\nbillion for Indonesia.<\/p>\n
\"Funds from the CGI and the IMF would have short-term positive
\neffects but they will not be able to stimulate sustainable growth
\nbecause next year, we cannot be so sure we will get that much
\nagain.\"<\/p>\n
Donor countries would monitor Indonesia to ensure their
\ntaxpayers' money was used wisely to stimulate positive economic
\ngrowth.<\/p>\n
Mari warned that official funds from CGI donor countries and
\nmultilateral lending agencies would only give Indonesia a
\n\"breathing space\".<\/p>\n
\"Okay, we have been given a breathing space with loans. Now,
\nwe can finance our fiscal deficits of minus 8.5 percent of gross
\ndomestic product.<\/p>\n
\"But we must stick to our fiscal discipline. We cannot just
\nspend those funds on any popular policy because this could have
\ndisastrous effects on inflation.\"<\/p>\n
She noted that the impact of the huge fiscal deficit would be
\non spiraling inflation. Therefore, monetary policy should be
\ntight. If not, inflation could shoot over 100 percent this year.<\/p>\n
To ensure tight monetary policy, the central bank should
\ncontinue to absorb excess liquidity in the market through open
\nmarket operations.<\/p>\n
She welcomed the central bank's move to hold a weekly auction
\nof its one-month promissory notes because it would let the market
\ndecide interest rates.<\/p>\n
The government should not be tempted to influence the central
\nbank to lower interest rates without the consent of market
\nplayers because it could result in higher inflation and the
\nweakening of the rupiah.<\/p>\n
\"High inflation and a volatile rupiah-dollar exchange rate
\nwould derail everything, including the restructuring of our
\nbanking industry and our corporate debt.\" (rid)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/private-funds-still-needed-to-lead-recovery-process-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}