Watching the U.S. nervously<\/p>\n
The rash of corporate and accounting scandals in the United
\nStates will surely have a negative impact on Indonesia, which
\nsells more than 22 percent of its exports to the world's largest
\neconomy.<\/p>\n
The immediate impact is already discernible in the declining
\nvalue of the dollar and the almost 5 percent fall in stock prices
\non Wall Street over the last few days.<\/p>\n
With an estimated half of all households in the U.S. owning
\nstocks, the wealth effect of falling stock prices is in itself
\nvery important, as it will hurt consumer confidence and
\nconsequently affect market demand.<\/p>\n
The core of the problem, as we can see from the financial
\nmarket performance over the last three days, is the lack of
\nconfidence in the U.S. economy. This is quite hurtful for the
\nAmericans, who have just come off a decade of overwhelming
\nconsumer confidence, believing that they had the strongest
\neconomy and were the most entrepreneurial nation in the world.<\/p>\n
Equally damaging is falling foreign confidence in the United
\nStates financial market. Because its trade deficit with the world
\nis huge, the U.S must attract at least US$1 trillion in foreign
\nmoney every day. A weakening capital inflow could further drive
\ndown the dollar and consequently drive up the prices of imported
\ngoods and depress consumer demand.<\/p>\n
Now that the U.S. is no longer seen as the safest and most
\nprofitable place for investment, at least for the time being or
\nuntil the market is reassured that there will no longer be a new
\nmajor wave of corporate malfeasance, many analysts reckon that
\nforeign funds will soon search for better places for investment.<\/p>\n
The dilemma, though, is that investors do not have many other
\nplaces to go. European economic growth is expected to remain
\nslower than American growth for the foreseeable future, while
\nJapan remains moribund and emerging markets, such as Indonesia,
\nare seen as fraught with too many risks.<\/p>\n
No wonder most investors are nervously watching the U.S.
\neconomy. But whether the corporate scandals inflict enduring
\ndamage on business investment, a key ingredient to a stable,
\nlong-lasting economic recovery, will depend on the developments
\nwithin the next few weeks.<\/p>\n
Among the most determinant factors to restore confidence in
\nthe U.S. economy are how strong and deep will the U.S. government
\npush ahead with corporate and accounting reforms be and how will
\ninvestors and the general public react to the forthcoming reports
\non second-quarter corporate earnings.<\/p>\n
Most analysts are nevertheless optimistic that U.S. economic
\nresilience is strong enough to survive the \"corporate terrorist
\nattacks\" as it did immediately after last September's terrorist
\nattacks in New York.<\/p>\n
How does Indonesia, which is in its fifth year of economic
\ncrisis, stand amid these developments?<\/p>\n
Certainly, the external factor is now less favorable for
\nIndonesia's economy, meaning that exports, currently the largest
\ngenerator of growth besides consumer demand, is much more
\ndifficult. Now that the U.S. economic prospect is rather
\nuncertain, the country should launch a more concerted effort to
\npromote exports to other markets to offset the expected lower
\ndemand from the American market.<\/p>\n
But exporting is only the end of a chain of economic
\nactivities, which consists mainly of the import of industrial
\nmaterials, the production process and transportation.<\/p>\n
Unfortunately, all these chains are still beset with problems
\nthat directly affect export competitiveness. Imports are still
\nhaving to struggle with a corrupt, inefficient customs service
\nand transportation is suffering from a crumbling infrastructure.<\/p>\n
Most damaging is labor unrest, which disturbs production
\noperations and makes foreign buyers less confident about timely
\ndeliveries from Indonesian exporters.<\/p>\n
The government, however, does not seem fully aware of how
\ncrucial exports are for fueling a sustainable economic recovery,
\nas can be seen in the absence of well-coordinated programs to
\nbolster exports.<\/p>\n
The government should realize that consumer spending, the
\nlargest generator of growth since 2000, will eventually lose
\nsteam without a steady increase in income to build up savings.
\nInvestment, which is supposed to be the other ingredient for
\neconomic expansion, is still hard to come by without significant
\nimprovement in law enforcement, security conditions, a smooth
\nimplementation of regional autonomy and labor relations.<\/p>\n
Exporting, therefore, is now the best alternative to generate
\na sustainable recovery. But exports will never grow markedly
\nunless the Cabinet corrects its fatally mistaken perception that
\nexporting is the sole responsibility of the Ministry of Trade and
\nIndustry.<\/p>",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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