`Govt must push local consumption amid global uncertainty'
`Govt must push local consumption amid global uncertainty'
Dadan Wijaksana, The Jakarta Post, Jakarta
With the world's gloomy economic outlook expected to further
hinder the country's performance in exports and attracting
investment, the government has no choice but to focus on policies
that can boost domestic consumption, experts say.
Economist Chatib Basri and businessman Djimanto shared the
same view that domestic consumption, which is now showing signs
of weakening, could play an increased role in pushing economic
growth, as had happened in the past couple of years.
"The government has to turn to domestic market-minded policies
under the unfavorable external conditions as in the near future
we have to rely on robust consumption to drive the economy,"
Chatib, of the respected Institute for Economics and Social
Research, Faculty of Economy, University of Indonesia, told The
Jakarta Post on Sunday.
War in Iraq and the outbreak of Severe Acute Respiratory
Syndrome (SARS) has dimmed prospects for international economic
recovery.
It is feared that a fragile global economy will further hurt
the economies of export-oriented countries like Indonesia, and
create jitters among investors.
Against this backdrop, boosting domestic consumption should be
on top of the government's list of priorities. There are at least
two things that can be done by the government to achieve that,
Chatib said.
On the demand side the government needed to maintain the
people's purchasing power and on the supply side it needed to
create policies that ensured the prices of goods and services on
the domestic market were cheaper.
"Maintaining the stability of macroeconomic indicators, such
as inflation, will ensure people keep spending, as high inflation
would otherwise lessen the public's buying ability," Chatib said.
Inflation has been so far kept controllable. Date recorded in
the first two months of the year is in line with the government's
full-year inflation target of 9 percent, thanks to a relatively
stable rupiah against the U.S. dollar.
On the supply front, priority should be given to policies that
reduce the costs of products and services, which could eventually
spur spending.
Among other things, Chatib said, the government should modify
existing tax laws on luxury goods, seen as detrimental to
creating competitive prices.
Djimanto, the chairman of Indonesian Employers Association
(Apindo), agreed, saying there were policies that could be taken
to reduce production costs, thus reducing the prices of goods,
which could in turn boost private consumption.
Apart from modifying tax laws, production costs could be
significantly reduced by getting rid of various levies and
lowering utility prices, including electricity and fuel.
However, while admitting robust domestic consumption was
crucial in propping up economic activities, Djimanto was of the
opinion that such incentives, or stimulus, should be given more
to local firms that can better compete, in terms of prices, with
imported ones.
"We surely do not want to see robust domestic consumption
driven mainly by the sale of imported products," Djimanto told
the Post on Sunday.
The government, which is struggling to balance its books, has
been pushing hard to generate as much revenue from tax as
possible.
In his response, Chatib said: "It's a matter of priority, we
know how tight the government's budget is, meaning that it needs
plenty of income, but this has to be done to spur the much-needed
economic activities."
The government has targeted economic growth of four percent
for this year, but due to SARS and a lingering recession in
developed economies, some say the target is unattainable.