Stronger market trust<\/p>\n
It is now almost seven weeks since the government has managed
\nthe economy without the direct supervision and balance-of-
\npayments support from the International Monetary Fund; and market
\ntrust in both fiscal and monetary management has increased
\nsteadily.<\/p>\n
This positive development can be seen in the steady
\nappreciation of the rupiah and the reduced volatility of its
\nexchange rate. The stronger rupiah has, in turn, lifted
\ninflationary pressures from imports, thereby enabling the central
\nbank to keep inflation within target and to continue lowering its
\nbenchmark interest rate.<\/p>\n
Inflation declined to a mere 0.57 percent in January, from
\n0.80 percent a year earlier and 0.94 percent in December. The
\nbenchmark interest rate also continued its downward trend to as
\nlow as 7.66 percent last week, from as high as 8.3 percent in
\nearly January. The Jakarta bourse also continued its rally,
\nraising its composite price index to over 767, the highest in the
\npast seven years.<\/p>\n
These developments reflect market expectations and perceptions
\non economic prospects this election year. Positive perception was
\nalso generated by market trust in the government's policy-making
\ncapability and determination to push ahead with its reform
\nagenda, as put forth in the White Paper of September 2003.<\/p>\n
The government seems to have been able to remove any earlier
\ndoubts the market had over its ability and discipline to continue
\nthe reform agenda after the end of the IMF-funded program in
\nDecember. The market has been deeply impressed by the
\ngovernment's high fiscal discipline, despite the great temptation
\nto introduce populist programs with a short-term aim of gaining
\nvoter support.<\/p>\n
President Megawati Soekarnoputri and her Cabinet pledged early
\nlast month that this year, the government would focus on
\nbolstering economic growth, maintaining the pace of reform,
\nattacking poverty, facilitating smoother distribution of goods
\nand preparing the draft 2005 state budget for the new government
\nto be installed in October. These are, by and large, the policies
\nit has followed thus far.<\/p>\n
The market also seems to have more confidence in the monetary
\nmanagement of the central bank, with a full trust in its anti-
\ninflation measures and in the consistency of its policy to lower
\ninterest rates to stimulate economic activities. The central
\nbank's monetary policies have thus gained market credibility.<\/p>\n
This virtuous circle will continue -- provided the government
\nmaintains high fiscal discipline and pushes ahead with the reform
\nagenda. Likewise, the central bank should nurture the current
\nmarket trust in its management and policies. These are the only
\nways of maintaining market trust in the government and its
\neconomic policies this year, with elections looming.<\/p>\n
The government should therefore not be swayed in any way by
\nthe pressures from narrow-minded and short-sighted lobbyists and
\nanalysts who are firing up inordinate nationalist sentiments and
\nxenophobia, demanding that the privatization program be stopped,
\npending the installation of a new administration in October.<\/p>\n
The privatization and divestment of the banks that were
\nnationalized at the height of the banking crisis from 1998 to
\n1999 are not only central to achieving fiscal consolidation and
\ncutting the budget deficit, but are vital to reform and
\nestablishing good corporate governance. Any signs of backtracking
\non these measures would erode the credibility of the government's
\ncommitment to reform.<\/p>\n
Privatization will bring in additional revenues to the cash-
\nstrapped government to help it cut down debt burdens, thereby
\nmaking it possible to release more resources toward public
\nwelfare. Privatization is also greatly effective in improving
\nmacroeconomic efficiency through the creation of a more
\ncompetitive market. On top of all this, its microeconomic
\nbenefits are manifold, including more efficient and thus, more
\nprofitable, enterprises, higher tax revenues and a significant
\nincrease in investment to spur job creation.<\/p>\n
State companies, even after privatization, will be subject to
\nIndonesian laws and regulations and must follow the policies of
\neach economic sector.<\/p>\n
What is needed, though, is for the government to set out and
\nimplement a credible strategy for privatization and clear-cut
\ndirectives, standard operational procedures and a step-by-step
\ndivestment process to ensure that transactions are highly
\naccountable and transparent.<\/p>\n
_________<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/stronger-market-trust-1447899208", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }