From the Editor
From the Editor
Indonesia will see two milestones next year: one in politics,
the other in the economy.
As our special issue on Tuesday argues, the country will mark
another crucial step in its democratization process when the
nation goes to the polls to elect new national and regional
legislators and, for the first time in Indonesia's history, to
directly elect the president and vice president.
Another milestone will be stamped on the economy when, for the
first time since the onset of the crisis in late 1997, the
government will manage its economic reform programs without the
special oversight of the International Monetary Fund (IMF).
The government, following the decision of the People's
Consultative Assembly, the country's highest law-making body,
has decided not to renew the IMF program, which ends today.
The decision, however, did not upset the market, because the
new reform agenda that was designed by the government for
implementation next year seems credible enough, and the virtuous
circle of improved macroeconomic indicators over the last two
years is seen as strong enough to fuel a stronger recovery.
However, many are apprehensive of what may happen to the
economy next year when the government and nation will be
preoccupied with three rounds of national elections.
Some even doubt the government's discipline to continue the
reform measures, many of which are painful, foreseeing instead a
rise in populist measures to gain voter support at the expense of
the long-term health of the economy.
Optimists, however, see the economic resilience as strong
enough to weather the political turbulence next year. They cite
the steady appreciation of the rupiah, a constant decline in
inflation and interest rates, persistently strong private
consumption, bullish sentiment in the stock market and continuous
fiscal consolidation.
We therefore asked The Jakarta Post panel of economists to
discuss the economic outlook next year, taking into account the
significant progress made in macroeconomic stability this year
and the challenges related to the logistical arrangements,
security and heightened political emotions during the electoral
process, which will involve more than 140 million voters.
Djisman S. Simanjuntak, chairman of the panel, expects only a
slight increase in economic growth next year, meaning that the
expansion will most likely hover below 4 percent, far from
adequate to absorb the huge number of unemployed.
Djisman is not worried too much about security during the 2004
election period but warns strongly that the hard-won gain in
macroeconomic stability could evaporate if the election fails to
bring to power a coalition strongly determined to build up good
governance.
Purbaya Yudhi Sadewa agrees that corruption is central among
the problems that make the business climate in the country highly
risky. He warns that Indonesia will end up as a loser in the
increasingly open global economy if it cannot make significant
progress in the development of good governance in the public and
private sectors.
Muhammad Chatib Basri shares Djisman's observation, foreseeing
only moderate economic growth due to the virtual stagnancy in
exports. Investment, he says, will remain slow because of labor
and institutional problems, while foreign direct investment will
still wait to see what kind of government will emerge from the
2004 election.
Basri expresses concern over the increasing protectionist
policies of the trade and industry ministry. Such a policy is
certainly counterproductive, because, as Hadi Soesastro observes,
the countries in the region are developing deeper economic
interdependence through free trading arrangements in the wake of
the breakdown in the World Trade Organization (WTO) ministerial
trade negotiations.
Satish Mishra is much less upbeat about the economic outlook,
warning that the macroeconomic stability the government has so
often flaunted is not a very great achievement, given the huge
sums in taxpayers' money that have been spent to stop the economy
bleeding.
The most difficult challenges, Satish says, still lie ahead as
the political system has yet to be consolidated and more
difficult economic reforms have yet to be implemented to create a
sustainable recovery, generate jobs and enhance a more equitable
distribution of income.
On top of these problems, Indonesia is also facing challenges
in managing the decentralization process that started in 2001,
argues Bambang Brodjonegoro. He warns that the early excesses of
regional autonomy should be resolved to improve the business
climate in the provinces.
Vedi R. Hadiz argues that steadily rising costs of living in
major cities, and a widening gap between the rich and the poor,
are some of the main reasons why Indonesian workers continue to
complain, even though the minimum wage has been increased
annually.
Herry-Priyono lambastes what he sees as the inhumane manner in
which the Jakarta administration has evicted squatters and
roadside vendors without giving them an alternative resettlement.
Haryo Aswicahyono is greatly concerned at the erosion of
competitiveness of the manufacturing industry due to unusually
high transaction costs related to basic infrastructure and
regulatory requirements.
Consequently, as Puspa Delima Amri concurs, exports have
become less competitive and Indonesia remains shunned by foreign
investors.
Worse still, not much in the way of investment credits are
expected from the banking industry.
Fauzi Ichsan observes most major banks will continue their
consolidation process amid the risks of a higher interest rate
climate during the election year and the privatization of several
more state-controlled banks.
The halt in foreign direct investment inflow is also evidenced
by the very weak market in office buildings, rental apartments
and industrial estates, observes Lini Djafar. She predicts,
though, a steadily rising demand in the retail and residential
sectors, fueled primarily by private consumption.
-- Editor