Geared up for 1996

Geared up for 1996

We have just ended 1995 with an impressive economic growth rate, which was estimated to be 7.1 percent by President Soeharto. After three consecutive years of such a respectable performance, we enter the new year confident of more robust growth.

The turbulence we encountered in the second week of last January, when the central bank was forced to draw on US$500 million of its foreign reserves holdings to defend the rupiah from speculative attacks, is not likely to recur this year. In the event of another financial debacle like the Mexican peso crisis in late 1994, which set off attacks on our rupiah, Indonesia has taken the necessary precautions.

Bank Indonesia (the central bank) has cemented an interlocking set of bilateral repurchase agreements with Australia, Hong Kong, Malaysia, Thailand and Singapore to cope with speculative assaults on the rupiah. Last week, the central bank widened its intervention band for the buying and selling rates of the rupiah against the American dollar to cope with the impact of short-term capital flows. Moreover, our inflation rate last year was kept below 8.5 percent. Though the level is still a high single-digit figure, it has come down significantly from 9.24 percent in 1994.

Our national rice stocks, buffered by 1.3 million tons of imported rice and a four percent production increase last year, are now well above the safety level. Barring disastrously bad weather conditions, we can expect an even better harvest this year.

The monetary authority has taken a series of measures to cool down our overheating economy. These moves will hopefully be strengthened by a conservative fiscal policy through the 1996/1997 state budget, which will be proposed to the House of Representatives on Thursday. The government is so strong that, despite in the face of general elections next year, it won't need to provide political goodies, which usually run counter to sound fiscal management. Hence, we expect a moderate state budget expansion, which, in real terms (adjusted for inflation), will be only slightly higher than the current one.

So sound are the fundamentals of our economy and so rosy are most of the key indicators that the biggest threat to maintaining economic stability and growth might come from complacency and overconfidence.

Complacency could divert our attention from the real problems, which are still regarded as perceived rather than real dangers, and eventually hurt our economy. Among the most pressing problems are the eroding international competitiveness of our economy caused by inefficiency, market distortions (monopoly, oligopoly) costly red tape, corruption, inadequate infrastructures and low- quality human resources.

Three successive years of healthy economic growth may seduce policy makers into quiet satisfaction and a feeling that massive economic and bureaucratic reforms are not necessary since we have been doing so well so far.

Such complacency could cause officials to underestimate President Soeharto's year-end instructions (repeated in almost every year-end address of the past ten years) regarding: budgetary discipline, the reduction of wasteful spending, the fight against corruption, more efficient and better public services as well as effective supervision within government offices and state companies.

Furthermore, the continuous wave of business complaints about red tape, illegal levies and other forms of malfeasance reveal the smug attitude of a bureaucracy slow to reform its ways of doing things.

Government leaders therefore need to work harder to convince the rank and file of President Soeharto's urgent message. Our economy is so inextricably linked to the world economy now that any mistake or policy inconsistency at home will undoubtedly be punished by the international market.