Expectations high but Budiono no miracle worker, analysts say
Urip Hudiono, The Jakarta Post, Jakarta
Improving coordination among the economic ministries and the management of the state budget is what analysts say former finance minister Boediono must immediately do upon his return to government in order to put the economy on the right track again.
"There are two important things that Boediono -- or whoever will be appointed as finance or chief economics minister -- must prioritize now," economist Kahlil Rowter of Mandiri Sekuritas told The Jakarta Post.
"The first is to better coordinate the government's fiscal policies with the central bank's monetary policies; the second is to maintain stability in the country's financial sector -- in the mutual funds market, for example -- which has more or less affected investor confidence and caused volatility in the rupiah."
Kahlil explained that as Bank Indonesia (BI) was at present maintaining a tight monetary policy by hiking interest rates to cope with the current rise in inflation, the government also needed to be contractionary in its fiscal policies.
Although acknowledging the need for more government spending to help spur economic growth, which has been slowing down due to rising inflation and interest rates, Kahlil warned that an expansionary budget should only be pursued if this was in line with BI's policies.
"This year's unspent budget allocations should not be disbursed all at once within the first semester of next year in order to avoid disrupting the macroeconomic stability that is currently being rebuilt," he said.
Standard Chartered Bank economist Fauzi Ichsan, however, said that it was increasing government spending that Boediono needed to focus on for the sake of higher economic growth, as well as pushing ahead with reform, including more privatization.
In a plenary session of the Indonesian Science Academy on Saturday, Boediono presented a paper assessing the current economic situation, in which he underlined the importance of political and economic harmony, as well as coherent policies within the government's economic team, if macroeconomic stability was to be achieved.
He also warned that macroeconomic stability should never be take for granted, and that prudent budgetary policies, including reducing the deficit and debt stock, should always be pursued. It was also essential to press ahead with reform in the area of governance.
A former central bank deputy governor and National Development Planning Agency (Bappenas) chief, Boediono is expected to have no difficulty in working together with BI and other state officials, as he did during his term as finance minister under the previous government.
Market analyst Dandossi Matram, however, said it was still too early to know what to expect of Boediono as his position in the Cabinet was still not clear.
He said that the positive market reaction following President Susilo's announcement that he had invited Boediono to join his Cabinet's economic team had more to due with the perception that Susilo was on the right track in his Cabinet reshuffle plans to improve the economy, rather than the "Boediono factor" itself.
"The markets will still wait and see what really comes of the reshuffle," he said, adding that Susilo's still vague reshuffle announcement was "merely testing the market."
Bank Negara Indonesia (BNI) analyst Ryan Kiryanto cautioned the public and the markets not to pin their hopes too high on Boediono as a macroeconomic savior. "Economic performance will depend on the cooperation and teamwork of the whole economics team, not Boediono alone."