Boediono lays down four-phase strategy to sustain growth

Dadan Wijaksana, The Jakarta Post, Jakarta

Minister of Finance Boediono said on Monday that Indonesia must complete four major phases in its economic development if it wants to achieve sustainable economic growth.

Currently, Indonesia was still half-way through the first phase -- establishing stability in the country's macroeconomic and fiscal condition, Boediono told a seminar on the economy here on Monday.

"In this phase, the government has completed 50 percent of the work, by lowering the deficit, reducing the default risk with (debt) re-profiling, as well as reducing the debt burden," he said, adding that the work had so far paid off.

He did not elaborate, but his remarks have been confirmed by the recent upgrade in the country's sovereign ratings by global agencies -- Standard and Poor's Rating Services and Moody's Investors Services -- as recognition for progress the country has made, particularly in the areas of reducing the deficit and debt ratio.

As in the fiscal situation, macroeconomic indicators were also improving, with easing inflation and the stable rupiah making it possible for Bank Indonesia to keep reducing its benchmark interest rate to help spur economic activities.

The second phase was aimed at strengthening basic institutions, such as good governance and anti-corruption measures to support the fiscal and macroeconomic stability, which Boediono said had been mostly outlined in the reform targets stated in the so-called White Paper document.

By successfully implementing those programs, Indonesia would have an even sounder fiscal condition, with one of the targets to reduce the country's debt ratio to less than 60 percent of gross domestic product (GDP) by 2005.

Currently, the debt ratio is around 70 percent of GDP, compared to around 100 percent about two or three years ago.

Moving to the third phase was a reform in microeconomic policy as well as its supporting institutions, with boosting investment and exports the main targets.

One of the tools to achieve that was reforming the country's legal system to create legal certainty. He did not elaborate but was obviously referring to Indonesia's much criticized judicial system.

The last phase centered on the need for a program that outlined a new economic development strategy to achieve sustainable economic development.

Boediono said that among other things, contents that should be taken into account were continued economic reform -- especially in the public service sector, competition yet market-friendly policies, providing increased attention to small and medium-scale enterprises (SME) and improvements in infrastructure to facilitate and speed up economic development.

Since the late 1990s economic crisis, Indonesia has been struggling to reform its economy, which has partly resulted in a growth rate of 3 to 4 percent over the past years.

The relatively meager growth was partly due to a lack of stimulus from the annual state budget to generate higher levels of growth, needed to help resolve the worrying unemployment problem, analysts have said.