Crash programs needed to boost growth, cut unemployment: UN

Urip Hudiono, The Jakarta Post, Jakarta

Indonesia needs to implement breakthrough economic programs, including the creation of labor-intensive projects and the easing of its current tight monetary policy, to promote economic growth and reduce unemployment, a United Nations official said.

Such programs are necessary because Indonesia's economy is projected to maintain its growth at less than 5 percent per annum for the next two years, according to a recent survey by the UN's Economic and Social Committee for Asia and the Pacific (UNESCAP), the senior external trade strategist for the UN Support Facility for Indonesian Recovery (UNSFIR), Prabowo, said.

"With economic growth at that level, it would be impossible for Indonesia to reduce its unemployment rate, which has reached some 10 percent of its population," Prabowo said on Friday.

"Indonesia needs an annual economic growth of at least 7 percent (to reduce unemployment)."

According to the survey, Indonesia recorded economic growth of 4.1 percent in 2003 and is expected to see average annual economic growth of 4.5 percent until 2006.

Prabowo, who is also UNESCAP's senior economist, suggested the government immediately undertake labor-intensive infrastructure repair and construction projects.

"The government, for example, could start by rehabilitating Java's highways," he said. "Apart from being able to absorb high levels of the workforce, such major infrastructure projects would at the same time support future economic development."

Prabowo also suggested the government temporarily loosen the country's current tight monetary policy, which is aimed at maintaining a budget deficit of less than 2 percent of gross domestic product and a maximum inflation rate of 5 percent.

"The government should find a balance in its macroeconomic policy between maintaining monetary stability, promoting economic growth and reducing unemployment," he said. "Focusing on monetary stability alone will only benefit financial market players, but will not help promote growth and reduce unemployment."

Prabowo said a deficit of up to 3 percent of GDP would still be tolerable if it was used to create labor-intensive projects. An inflation rate of up to 10 percent, meanwhile, would help promote economic growth by pushing down real lending interest rates.

"With interest rates remaining at 15 percent and inflation at 5 percent, the real interest rate will be about 10 percent, which is still too high for businesses to grow," he said.

To complement these crash programs, Prabowo suggested the government begin focusing on the promotion of foreign direct investment and exports to Asia and the Pacific, as UNESCAP's survey revealed the current sustainable economic growth in the region was mainly due to inter-regional trade.

"Indonesia also needs to develop the skills of its human resources, particularly in the electronic components and automotive parts industries, in which UNSFIR sees Indonesia as still having a competitive advantage in the region," Prabowo said.