Economic stability

Economic stability

It should have been a surprise to big speculators to find out
that the Indonesian financial market had not been jolted by wild
fluctuations during the violence-marred election campaign.

In fact, according to market analysts, several currency
speculators had suffered big losses due to the strengthening of
the rupiah immediately after the May 29 election. Many traders,
worried by the wave of campaign-related violence and rumors of
political instability had shifted heavily from the rupiah to the
dollar, hoping to rake in big gains a few days after the
election.

But the speculators were burned because the market remained
fairly stable last month even during the hurly-burly of the
campaign month. The rupiah rate did not fluctuate outside the 8
percent exchange rate band (Rp 2,407-Rp 2,600 to the American
dollar) set by the central bank. The rupiah did weaken from Rp
2,364 in January to Rp 2,437 in early May and Rp 2,444 on the eve
of the election. But it immediately recovered to Rp 2,407 the day
after the election. The rupiah closed yesterday at Rp 2,428.
Likewise, investors' confidence also prevailed in the Jakarta
Stock Exchange, as shown by the narrow movement of the stock
price index.

The financial market stability should be attributed largely to
the right monetary management of the central bank and the sound
fundamentals of the economy. Surely, the widening of the rupiah's
exchange rate band late last year to 8 percent has served as a
deterrent to excessive speculation. Had it not been for the wider
intervention band, the rupiah market would have been much more
volatile due to short-term jitters which are usually highly
rampant a few weeks before the election.

The timely announcement of reliable information on key
economic indicators by the government also makes market players
and businessmen more comfortable and enables them to make
rational analyses despite the highly active political rumor mill.

Last week's disclosure of another package of economic reform
measures to be launched this month further contributed to the
positive sentiment of the country's long-term economic prospects.
The forthcoming deregulation package is giving the right signal
that the government will remain consistent with its market-based
economic management.

The 1997 Global Competitiveness Report of the Geneva-based
World Economic Forum issued 10 days ago, which promoted Indonesia
from the 30th to the 15th rank among the 53 developed and
developing countries surveyed, served as another international
endorsement of Indonesia's macroeconomic policies. Though many
international economists have debated the viability of the
competitiveness ranking, the inclusion of Indonesia on the list
is positive. It shows a relatively easy access to data and
information on the Indonesian economy, thereby facilitating
reasonable risk calculations.

Golkar's landslide victory in last week's general election
came as another guarantee that macroeconomic policies will be
maintained in the right direction. Barring any widespread violent
protests against the final election results which are expected to
be announced tomorrow, business will continue as usual.

But economic stability can only be sustained if the government
seriously considers and translates the mainstream aspirations of
the people aired during the election campaign into concrete
programs of action. Whether the country can sustain its economic
dynamism depends on the ability and willingness of the government
to allow people to be innovative and speak their minds and give
them a platform for entrepreneurial spirit to thrive.

The nation's economic development has reached the stage where
political reform and a highly accountable government or good
governance have become a precondition for sustaining growth.