The virtuous circle<\/p>\n
Improving macroeconomic stability, the steady, significant
\nprogress in the implementation of reform measures over the past
\n18 months and several hugely positive developments in the past
\ntwo months have accelerated the process of the virtuous circle
\nwithin the Indonesian economy.<\/p>\n
This in turn has markedly improved the market perception of
\nthe country's economic outlook, and assured investors and
\ncreditors that the process of Indonesia's economic recovery will
\naccelerate despite the risk of political turbulence during the
\n2004 election year.<\/p>\n
There have been several new developments, especially over the
\nlast two months, that have contributed to the speeding up of the
\nvirtuous circle that started last year.<\/p>\n
First of all, the market reacted positively to the white paper
\non Indonesia's new reform agenda that was unveiled last month.
\nThis means that the market sees the new reform programs, which
\nwill replace the International Monetary Fund program that ends
\nlater this year, as fairly credible.<\/p>\n
Many analysts had been concerned that the complete termination
\nof the IMF program would upset market confidence in the country,
\nespecially ahead of the 2004 elections, when almost all political
\nleaders, from the president on down to district chiefs, would be
\npreoccupied with campaigning.<\/p>\n
Fortunately, the impressive policy performance over the past
\ntwo years has significantly improved the credibility of the
\ngovernment in designing and implementing reform programs.<\/p>\n
Late last month, rating agency Moody's Investors Service
\nupgraded Indonesia's sovereign rating in light of improvements in
\nits external balance and a significant decrease in its government
\ndebt ratio.<\/p>\n
Moody's said Indonesia's international reserves had risen to
\nlevels that reduced the country's vulnerability to external
\nshocks, and that its international debts had fallen. This higher
\nrating will certainly decrease the costs of Indonesia's borrowing
\noverseas.<\/p>\n
Last week, Standard & Poor's Ratings Services also raised its
\nlong-term foreign and local currency ratings on Indonesia,
\nreflecting the country's good fiscal performance backed by
\nimproving macroeconomic stability.<\/p>\n
A stable rupiah exchange rate and increases in foreign
\ninvestment in banks and corporate assets (through asset
\nacquisitions) have improved international liquidity in the
\ncountry despite the termination of the IMF program later this
\nyear, which will increase Indonesia's foreign debt service
\nburden.<\/p>\n
Also last week, the IMF executive board in Washington
\ncompleted its 10th review of Indonesia's performance under its
\nUS$5.2 billion extended fund facility arrangement, thereby
\nreleasing a further $493 million to strengthen Indonesia's
\ninternational reserves.<\/p>\n
The IMF praised Indonesia's economic performance, pointing out
\nthat inflation continued to decline, the rupiah was stabilizing
\nand interest rates were on a downward trend.<\/p>\n
However important these achievements may be for strengthening
\nthe economic ability to weather any political turbulence next
\nyear, complacency is out of question.<\/p>\n
Finance minister Boediono cautioned at a seminar on Monday
\nthat despite all the impressive progress, Indonesia was still
\nonly half-way through the first of four stages of development the
\ncountry must pass through in order to achieve sustainable growth
\nof more than 5 percent, which is needed to absorb the
\nunemployed.<\/p>\n
Boediono said further concerted efforts were required to
\nstrengthen basic institutions (good governance), and additional
\nreforms of microeconomic policies and their supporting
\ninstitutions were necessary to reinvigorate investment.<\/p>\n
Bank Indonesia Governor Burhanuddin Abdullah shared Boediono's
\nmessage of caution, saying on Monday that banks had yet to fully
\nreturn to their function of providing lifeblood (credits) to the
\neconomy. Most banks remain overcautious in new lending and are
\nhesitant to lower interest rates due to the persistently high
\nrisks in the business sector.<\/p>\n
The string of impressive achievements should not lull the
\ngovernment into complacency, as the overall economic condition of
\nthe country is still vulnerable to internal or external shocks.<\/p>\n
Yet the accelerated process of the virtuous circle will
\nhopefully strengthen the confidence of the government and the
\nHouse of Representatives in taking on tougher reforms, especially
\ngovernance and judicial reforms.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/the-virtuous-circle-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}