Economists doubt stimulus plan will work

Economists doubt stimulus plan will work

The Jakarta Post, Jakarta

Economists raised doubts about a government plan for an
economic stimulus package aimed at revitalizing the private
sector, but welcomed the setting up of a crisis center, which,
they said, should enable the government to respond to economic
problems more quickly.

Senior economist at the Danareksa Research Institute Raden
Pardede said he was surprised at hearing the government planned
an economic stimulus package.

Kompas daily reported Vice President Hamzah Haz as saying on
Wednesday that an economic stimulus package was being drafted,
and might be presented by next March.

Hamzah said it was impossible to expect an economic recovery
without a stimulus package to spur growth in the real sector.

"But if we're talking about a stimulus, that can only come
from either the fiscal side or the monetary side," Raden said.

"And right now the government cannot afford a stimulus on
either side."

He said the state budget was running too tight to allow it
spare funds for a stimulus package.

A major and also growing constraint to the state budget has
been the expenditure to service domestic debt.

This year alone spending on domestic debt payment is greater
than development spending, which is where a stimulus could have
come from.

A source at the Ministry of Finance confirmed that if a
stimulus package was being drafted, it was unlikely to be a
fiscal one.

On the monetary side, Raden continued, a stimulus was doubtful
as well because the monetary outlook remained fragile.

"Bank Indonesia cannot afford to ease its monetary policy," he
said.

Bank Indonesia's benchmark rates have been dropping since
early this year, but analysts said they could rise again due to
inflationary pressure and a huge foreign debt overhang weighing
against the rupiah.

Instead of a stimulus package, Raden said, the government
would do better improving the investment climate, which has
spooked capital away.

"Legal certainty, security and political stability would do
the job," he said.

Economist at the Centre for Strategic and International
Studies (CSIS) Hadi Soesastro said the only stimulus the economy
could hope for should come from the private sector.

"The government can't do it and shouldn't do it," he said.

Economist at Standard Chartered Bank Fauzi Ichsan agreed. He
said the state budget had already been drawn up, and what was
left could do little to stimulate the economy.

On plans for a crisis center, Raden said that it was a better
move, designed to cope with economic problems while anticipating
others.

"What it should do is monitor progress of each single item of
the LoI (letter of intent)," he said, in reference to the reform
program outlined in a lending agreement with the International
Monetary Fund.

But he warned that the crisis center should not become a new
bureaucratic organ under Vice President Hamzah's control.

According to a source, President Megawati Soekarnoputri has
aired concern over Hamzah's initiative to round up economic
ministers and establish the crisis center.