Govt economic policies

Govt economic policies

The Jakarta Post's comment about our country's problems and
the government's economic team's performance in an editorial
titled Bitter medicine on May 17, contains a number of factual
errors.

This economic team shares the deep concern of the Post about
the consequences of a weakening currency. Since the current
Cabinet took office, the economic team has been working hard to
implement policies to strengthen the economy and the rupiah. We
have been successful in a number of areas, as acknowledged by our
partners.

In an important sense, the depreciation of the rupiah is at
least in part a "monetary problem". Bank Indonesia, not the
government, was given the responsibility by the current Central
Bank Law to maintain the value of the rupiah. If monetary growth
is too rapid, one will see the type of depreciation that we have
seen over the past 18 months. As Ross McLeod of the Indonesia
Project at the Australian University in Canberra pointed out on
your editorial page "if inflation and depreciation of the
currency get out of hand, the Central Bank must bear the blame".
And the fact is the Central Bank Law provides one single
objective for Bank Indonesia, i.e. maintaining the value of the
rupiah.

The economic team supports the central bank's efforts to
tighten the monetary policy, lower inflation and strengthen the
rupiah. Wherever blame lies for our current predicament, there
are a number of tough decisions that must be made. For instance
the weak rupiah and high interest rates that are needed to
address them have completely undermined the 2001 budget as passed
by the House of Representatives. Thus we now project that without
dramatic adjustments to our policies, the budget deficit will
balloon from 3.7 percent to 6 percent of Gross Domestic Product.

Since such a high deficit cannot be readily financed without
fueling further inflation or forcing interest rates even higher,
difficult times demand that hard choices be made. It is for this
reason that the government is proposing a series of tough
measures to the House. These will include reducing the burden of
subsidies on the budget, an increase in the value-added tax and a
reduction in development expenditures.

The House will have to make sure that it too can make hard
choices. The nation cannot afford to ignore the budgetary
problems in the hopes that it will somehow go away. Failing to
act now will only further weaken the rupiah and cause further
suffering for all Indonesians.

I would like to take exception to the short shrift your
editorial gives to the accomplishments of the people of Indonesia
last year. We should all be proud that despite the problems in
the country last year, the economy grew at 4.8 percent and
continued to grow at 4 percent into the first quarter of this
year, driven by high levels of non-oil and gas exports, higher
than precrisis levels. As stated by Coordinating Minister for the
Economy Rizal Ramli when he took office in August 2000, his
priority is first of all to push exports. That we now have the
beginnings of a recovery, as indicated by the increased use of
electricity and cement and increases in car production and sales
of motorbikes, is in part due to the diligence of a well-
coordinated economic team.

The economic team is now working to implement a comprehensive
set of economic policies that will improve the productivity of
Indonesian capital and labor so that our products are competitive
in world markets irrespective of the value of the rupiah.

But economic policies do not work in a vacuum. It will take
more than good economic policy to strengthen the rupiah. Without
some sort of solution to our political problems, there is not
much that an economic policy can accomplish.

KOMARA DJAJA

Deputy Macroeconomics and Finance

The Office of the Coordinating Minister for

Economic Affairs