Crash programs needed to boost growth, cut unemployment: UN

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.