Experts challenge govt claim that the economy is doing well

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.