`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.