Sept. 22, 2004
\n;JP;VIN;CD;
\nANPAk..r..
\nEditorial-
\nElection buoys the market
\nJP\/6\/EDIT22<\/p>\n
Election buoys the market<\/p>\n
The financial market predictably reacted positively to the
\npeaceful and orderly presidential runoff, especially because the
\nelection was perceived to be fair. While rupiah remained flat,
\nthe stock market increased by 1 percent on Tuesday with the
\nJakarta stock price index closing at 824.<\/p>\n
This market sentiment will most likely strengthen on the back
\nof strong political stability, especially if both the president
\nelect and the losing candidate demonstrate a high degree of
\nstatesmanship in facilitating the transition process.<\/p>\n
The immediate impact of this upbeat market sentiment will be a
\nhigher pace of portfolio capital inflows, which will fuel a
\nhigher rate of rupiah appreciation and substantial rise in stock
\nprices.<\/p>\n
These developments will in turn strengthen the virtuous circle
\nwithin the economy. A stronger rupiah will decrease the costs of
\nimports and consequently reduce inflationary pressures, thereby
\nenabling the central bank to decrease its interest rates. An
\neased money policy will help commercial banks to cut their credit
\ninterest rates, and more businesses will be able to afford new
\nloans to expand operations. Even more substantial will be the
\nsignificant decrease in the government's domestic debt-servicing
\nburdens, thereby releasing bigger resources for other more vital
\nspending such as on public services and infrastructure.<\/p>\n
Accelerating the virtuous circle within the economy is
\nespecially crucial now for strengthening the macroeconomic
\nstability during the current transition period until the October
\n20 installation of the new president and in facing the enormous
\nchallenges awaiting the incoming government.<\/p>\n
The new president hardly has any time for celebration as the
\nnew government is immediately in for big challenges. First of
\nall, the new government will have to secure adequate supplies of
\nbasic commodities and land, sea and air transportation services
\nto meet the seasonally high increase in market demand during the
\nupcoming Idul Fitri holidays in the middle of November and
\nChristmas and New Year holidays.<\/p>\n
The incoming government and the House of Representatives will
\nalso face a very tight schedule to deliberate the 2005 state
\nbudget plan. This central government budget plan has to be
\napproved by the House in November at the latest to allow for at
\nleast one month for local administrations to prepare their own
\nbudgets.<\/p>\n
Besides its tight schedule, the government-House deliberation
\nof the 2005 state budget plan will be quite tough as it will have
\nto encompass painful measures to ensure fiscal sustainability.
\nForemost among them will be raising domestic fuel prices to cut
\ndown on fuel subsidies, which this year alone is estimated to
\nballoon to about Rp 63 trillion ($7 billion) from the original
\nplan of Rp 14 trillion due to the steep rise in international oil
\nprices.<\/p>\n
Preparing conducive political and economic preconditions for
\nthe new fuel pricing policy will be one of the most challenging
\nand even delicate tasks for the new government. Managing the
\neconomic impact and political repercussions of higher fuel prices
\nis never easy. In fact it was higher fuel prices that accelerated
\nthe downfall of then president Soeharto in May, 1998.<\/p>\n
The new government nevertheless should not even think of
\nanother postponement in adjusting domestic fuel oil prices,
\nexcept kerosene for household use, to international market prices
\nas we have now become a net oil importer.<\/p>\n
The new government has to bite the bullet because further
\ndeferring this painful measure would erode market confidence in
\nthe fiscal management and, yet more damaging, would damage the
\ncredibility of the government in continuing economic reform.
\nPolitical determination to continue the fiscal consolidation is
\ncentral in the ongoing process of economic reform and is one of
\nthe bedrocks of the current macroeconomic stability.<\/p>\n
Hence, the 2005 budget plan should convey to the general
\npublic, notably the market, a strong, clear-cut message regarding
\nthe new government's fiscal policy as it will also help the
\ncentral bank design an appropriate monetary management to control
\ninflationary pressures.<\/p>\n
Better coordination of monetary and fiscal policies, as
\nreflected in the steady easing of the credit crunch and the
\ncontinued fiscal consolidation over the past two years, is vital
\nto maintain macroeconomic stability, without which almost nothing
\nelse will work within the economy.<\/p>\n
In this context, it is therefore imperative that the House and
\nthe government give top priority to the deliberation of the draft
\n2005 state budget, that was proposed in mid-August by the present
\ngovernment.<\/p>\n
_______<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/sept-22-2004-1447899208", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }