Economists warn economic recovery a long way to go

Economists warn economic recovery a long way to go

Tony Hotland, The Jakarta Post, Jakarta

Top economists warned that lower bank interest and inflation
rates, and a stronger rupiah are not the ultimate indicators of a
sound economy, but only intermediate objectives.

Speaking during a seminar on Indonesia's transition process on
Tuesday, State Minister of National Development Planning Kwik
Kian Gie said that the constant decline in the interest rate was
only discouraging savings.

"That's why those who understand the core issue here have
invested their capital abroad in many forms of investments that
offer yields of around 6 percent to 12 percent; all in foreign
exchange so they have no worry about declining value," said Kwik.

He added that the lower inflation rate was not necessarily a
positive indicator for the economy since it could just be a sign
of stagnation (a condition where industries are reluctant to
expand due to lower selling prices for their goods).

Kwik, who also chairs the National Development Planning Board
(Bappenas), has often criticized government policy.

Government officials have often described the current economic
condition as increasingly stable as reflected in lower inflation
and interest rates, a stronger rupiah, and soaring stock market.
They have said that the economy is on the right track for a
sustainable recovery.

But a number of economists have asserted that the relatively
stable macroeconomic indicators have not translated into higher
investment activities, a fundamental factor to ensure sustainable
economic growth.

Kwik's view was also shared by the coordinator of a coalition
of economists called Indonesia Bangkit (Indonesia Awakens), Rizal
Ramli, who sees the level of unemployment as the single most
important indicator of economic performance.

"Why does the government claim that the economy is recovering
when unemployment is rising? It's because the government's chosen
indicators of economic performance are the exchange, inflation,
and the interest rate," said Rizal, speaking in the same seminar.

He said that stabilizing those rates rests primarily with the
central bank. The ultimate objective of government policies
should be to reduce unemployment and to increase the purchasing
power of people, said Rizal.

He described the current economic situation as "vulnerable
financial stability combined with a jobless recovery".

"Layoffs continue unabated and factories are still closing.
Unemployment is a time bomb that if allowed to increase over time
will give rise to huge social, economic, and even political
problems," warned Rizal.

In 2003, open unemployment in the country reached 39.3 percent
of the country's 215 million people, a steady increase from 38.4
percent in 2002 and 36.2 percent in 2001.

Rizal, a former minister of finance, and coordinating minister
for the economy, explained that the contradiction between
financial stability and rising domestic unemployment was due to
Indonesia's stability, which has been more externally driven.

"Internally driven stability is more sustainable than
externally driven stability resulting from the weakening U.S.
dollar and low international interest rates that have minimum
impact on the labor market," he said.