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.