Experts challenge govt claim that the economy is doing well

Dadan Wijaksana, The Jakarta Post, Jakarta

The recent improvements in a number of the country's macroeconomic indicators should not cause the government to turn a blind eye to the various setbacks in other areas that could have a profound impact on economic growth, experts said.

While admitting that the current macroeconomic stability was encouraging, the government's progress in providing a conducive business climate had been slow and had failed to keep up with the pace of eroding investor confidence in the country.

Anton J. Supit of the Indonesian Footwear Association criticized the government for claiming that the economy was progressing well in the first half of the year based solely upon positive macro indicators like the stronger rupiah, lower inflation and declining interest rates.

"All these send good signals. But there is other data too. How do we explain a sharp drop in investment and exports? It's naive to say that the economy is progressing given these conditions," Anton told The Jakarta Post on Tuesday.

The government earlier announced that some progress had been made in the second quarter of the year, saying that the positive developments in the macroeconomic situation came as a result of prudent fiscal and monetary policies.

However, rather than boasting about the positive signs, the government should instead focus more on efforts to deal with the negative ones, Anton said.

"So far, I see no real action on the part of the government to improve the current business climate."

While a stronger rupiah had resulted in controllable inflation and helped keep Bank Indonesia interest rates on a downward trend, other indicators were pointing in the opposite direction.

Approvals for both foreign and domestic investment kept on declining, in line with falling exports.

Approvals for direct investments, both foreign (FDI) and domestic, during the first five months of the year fell by 59 percent and 30 percent respectively, compared to the same period in 2001.

The country also experienced an almost 10 percent drop in exports in May compared to the same period the year before.

To regain investor confidence, economists Sri Mulyani Indrawati and Fauzi Ichsan agreed that the government should speed up its efforts at legal reform, labor affairs and decentralization.

Both stressed that this was crucial to off-setting the effects of the current global downturn, which were also believed to be playing a part in the country's slow economic recovery.

"While the government can do little to improve the global situation, it can do a lot to provide a favorable domestic business climate," Sri said.

Fauzi concurred, saying that if the country wanted the regain the sort of growth rates it experienced before the crisis, around 6 percent to 7 percent, investment was essential as reliance on robust domestic consumption would only produce economic growth of between 3 percent and 4 percent, as had been the case over the last two years.

Nevertheless, Fauzi said that the government should also be given credit for creating a stable macroeconomic environment.