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.