Waiting for stimulus<\/p>\n
Businesspeople may be skeptical about Minister of Finance
\nBoediono's announcement of a new stimulus package the government
\nwill soon provide to reinvigorate business and spur investment in
\na bid to offset the impact of the bombing at the JW Marriott
\nHotel in Jakarta.<\/p>\n
Given the fragile economic situation and the large idle
\ncapacity in manufacturing industries, the most appropriate fiscal
\nstimulus should be designed to increase domestic and external
\n(export) demand.<\/p>\n
But there is not much leeway for the cash-strapped government
\nto launch new pump-priming measures to stimulate domestic market
\ndemand, because its revenues from several sectors may fall short
\nof their targets.<\/p>\n
For example, it is likely that only a small portion of the Rp
\n8.5 trillion (US$1 billion) in receipts the government expects
\nfrom the privatization of state companies this year will be
\ncollected.<\/p>\n
In fact, judging from actual spending during the first half of
\nthis year, the government may not be able to spend all of what it
\nhas budgeted. Only Rp 14.2 trillion, or 22 percent, of the 2003
\ndevelopmental (investment) budget has so far been spent, due
\npartly to a lack of matching funds to implement foreign-aided
\nprojects.<\/p>\n
Providing another package of tax relief for certain categories
\nof goods, like the ones given in January and May, could fuel
\nstronger domestic demand. But this option seems unfeasible in
\nview of the poor prospects for several revenue sources.<\/p>\n
Instead of providing additional tax breaks, the government may
\neven have to increase tax receipt targets next year to meet
\nbigger spending, due in part to the steep increase ($3 billion)
\nin foreign debt servicing burdens. This is because of the
\ngovernment's decision to end the International Monetary Fund
\nprogram later this year, which will deprive the government of
\naccess to new debt rescheduling facilities from the Paris Club of
\nsovereign creditors. Moreover, about Rp 25 trillion in government
\nbonds will mature next year.<\/p>\n
Stimulating the economy by pushing external demand through
\nexports is also an uphill task, given the increased security
\nconcerns after the Marriott bombing and the persistently high
\nrisks encountered by businesspeople.<\/p>\n
Hence, the only feasible alternative is stimulating business
\noperations by removing barriers and consequently reducing risks.
\nBut this course requires a much faster pace of structural reform
\nin customs and tax services, labor regulations and other sectors
\nof public governance, as well as better legal and physical
\ninfrastructure.<\/p>\n
Unfortunately, structural reform has long been the biggest
\nnegative point in the government's record, because of what
\nanalysts call an acute lack of effective government leadership
\nand sense of urgency on the part of the government and
\npoliticians.<\/p>\n
However, the problem should not be blamed totally on the
\ngovernment. Structural reform is basically a long-term process
\nbecause it involves the building of institutional capacity,
\nmeaning civil service reform. This task alone is already a tall
\norder, especially in the early stages of decentralization.<\/p>\n
The government nevertheless can still do a great deal to
\nreduce business risks and the cost of doing business by giving
\ntop priority to public sectors that greatly influence business
\noperations.<\/p>\n
Judging from the complaints being raised by businesspeople,
\nthe government should zero in on stepping up trade-facilitation
\nmeasures such as those having to do with transportation, port
\nhandling and customs service, and providing legal certainty in
\ntaxation, notably tax audits and tax refunds.<\/p>\n
The government is fully aware of what are the most urgent
\nproblems in these areas. What is needed now is an effective
\nleadership to instill a sense of urgency among officials.<\/p>",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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