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