RI macroeconomic coordination 'need improvement'<\/p>\n
The Supreme Advisory Council has recently provided a document
\nexplaining the government's economic strategy to a group of 15
\neconomists who criticized the administration for having a
\npopulist policy last week. The group's spokeswoman, Sri Mulyani
\nIndrawati, discusses loopholes in the government's concept.<\/p>\n
Question: What do you think about the government's economic
\nconcept?<\/p>\n
Mulyani: The concept is actually a result of a repackaging of
\nthe government's economic programs under its letter of intent
\nsigned recently with the International Monetary Fund (IMF).<\/p>\n
It sounds good because it aims at restoring confidence and
\nstarts with the description of macroeconomic measures for the
\nestablishment of economic stability.<\/p>\n
However, it does not have a focus and does not show any
\npriority in the programs needed in the coming two to three
\nmonths.<\/p>\n
Furthermore, it also shows an inconsistency in its
\nmacroeconomic measures, giving the impression that it is merely a
\ncompilation of separate, individual policies in various sectors
\nwithout any systematic coordination. The whole concept indicates
\nthat it has been prepared mainly for political and populist
\npurposes.<\/p>\n
At the level of its implementation, Cabinet members seem to be
\ncompeting against each other, indicating that the economic team's
\nleadership is poor.<\/p>\n
Q: How could such a lack of team leadership occur?<\/p>\n
M: I am sure that it has been caused by poor leadership from both
\nthe President and the economic coordinating minister. There seems
\nto be a lack of basic trust among Cabinet members, exhibited by
\npoor communication among themselves.<\/p>\n
Such a problem is structural and it can become more serious if
\npolitical pressure mounts and the economic situation
\ndeteriorates.<\/p>\n
Political pressure may increase as next year's general
\nelection approaches and the economy could deteriorate if the
\ndisbursement of aid from the Consultative Group on Indonesia
\n(CGI) is interrupted (by the government's failure to repay some
\nof its old debt) or if China devalues the yuan.<\/p>\n
Q: Does the concept have a high dose of economic policy based on
\npeople's economic needs?<\/p>\n
M: No. President B.J. Habibie's statement that the economic
\npolicies were based on developing the economy according to
\npeople's needs was confusing because such development takes up
\nonly a small portion of the concept. Only one point of the fiscal
\npolicy mentions measures that aim at reinvigorating people's
\neconomic activities, particularly small businesses and farming
\nprograms.<\/p>\n
So saying that the concept is based on such economic
\ndevelopment is merely based on political and populist purposes.<\/p>\n
Q: You said the concept did not show consistency among its
\nmacroeconomic measures?<\/p>\n
M: The concept, for example, says that the government, on the one
\nhand, will avoid hyperinflation by tightening the country's
\naggregate monetary demand and limiting the growth of net domestic
\nassets at zero percent this fiscal year. But, on the other hand,
\nthe fiscal policy allows the government to suffer a budget
\ndeficit worth 8.5 percent of the country's gross domestic product
\n(GDP). Such a big deficit, even though it will be financed with
\nforeign aid, may cause hyperinflation.<\/p>\n
Furthermore, such a tight money policy will not be effective
\nas long as Bank Indonesia, the central bank, provides a great
\ndeal of liquidity support (currently totaling Rp 140 trillion, or
\nUS$10.7 billion) to ailing commercial banks and subsidized loans
\nfor the State Logistics Agency (Bulog) and small businesses.<\/p>\n
Q: How should the country's economic policies be formulated?<\/p>\n
M: The policies should be formulated with the highest priority on
\nthe establishment of economic stability, marked by low inflation
\nand a stable, low exchange rate of the rupiah against the U.S.
\ndollar.<\/p>\n
At the macroeconomic level, monetary and fiscal policies must
\nbe consistent with each other, so that none of them will
\nneutralize the effectiveness of the other. Monetary supply must
\nbe tightened -- this may result in high interest rates -- while
\nthe government budget should be set to produce a surplus.<\/p>\n
However, because the social situation is not conducive for the
\nproduction of a budget surplus, the government's budget could be
\nset with a maximum deficit worth 3 percent of GDP.<\/p>\n
At the microeconomic level, all programs must be consistent
\nwith macroeconomic policies, so that their implementation will
\nnot boost inflation rates and will not worsen the country's
\nbalance of payments.<\/p>\n
On employment measures, for example, social safety net
\nprograms must be targeted at the creation of labor-intensive jobs
\nand subsidies must be limited to projects that can really create
\nemployment and encourage the production of goods totally or
\nmostly based on local resources.<\/p>\n
Economic policies directly aimed at helping certain small
\nbusinesses and farmers could be introduced after six to 12 months
\nor after the establishment of macroeconomic stability.<\/p>\n
Besides such policies, the government must also improve its
\nsense of crisis, its leadership and coordination among Cabinet
\nmembers.<\/p>\n
Officials in charge of macroeconomic policies, the minister of
\nfinance, the state minister of development planning and the
\ngovernor of Bank Indonesia, for example, must improve the
\nsynchronization of their policies and transmit them well to
\nministers in charge of microeconomic policies.<\/p>\n
The latter ministers will then have to keep their policies
\nconsistent with macroeconomic policies. (riz)<\/p>",
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