Govt to maintain prudent monetary, fiscal policies
JAKARTA (JP): Minister of Finance Mar'ie Muhammad pledged to maintain prudent monetary and fiscal policies to anticipate and face global economic trends.
"To face the global changes and challenges, we need to continue and enhance a prudent, or even a very prudent approach in managing our economy, including fiscal and monetary affairs," Mar'ie said in his speech at Airlangga University's 41st anniversary in Surabaya, East Java, on Saturday.
Mar'ie noted that by taking an extra-prudent approach, it does not mean that Indonesia takes a passive, static or even stagnant approach to its economic management. "This extra-careful approach will make us always ready to face the worst condition ever."
As world economic trends move very quickly and are very transparent, liberal and full of uncertainties, Indonesia needs to closely monitor and anticipate the trends and continuously adapt its economy to the trends, especially those prevailing in its prime trade partners.
He warned that any instability in the world's leading economies would affect other economies, especially the developing ones. Mexico's monetary crisis early this year, which almost dragged other emerging economies, including Indonesia, into another crisis, serves as a good example.
"Indonesia was successful in avoiding the negative impact of the Mexican crisis by minimizing speculations," Mar'ie said. "This success was closely related to the condition of our economic fundamentals, the government's quick reaction to the crisis and the business sector's trust in our fiscal and monetary authority."
Mar'ie said that prudent fiscal and monetary policies should be followed by efficient management on the side of the "real" sectors. "To make our national development programs a success story, it needs strong and sustainable coordination between the fiscal and monetary sectors."
He noted that the direction of Indonesia's fiscal and monetary policies would be much influenced by the private sectors, both domestic and overseas, which had been contributing a large portion of investment funding in the country.
Efficiency
"Therefore, any inefficiency on the part of the private sector will seriously affect our efficiency record on the national level," the minister said.
He said that to improve the country's efficiency, the government would continue bringing down the remaining high tariffs, to a level of a maximum of 10 percent by 2003, when the agreement on the ASEAN Free Trade Area is fully implemented.
The Association of Southeast Asian Nations (ASEAN) groups Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.
Mar'ie said the government is also gradually removing non- tariff barriers and changing them into tariff barriers, as required by the World Trade Organization, of which Indonesia is a member.
"However, it needs to be noted here that a number of developed countries are introducing new non-tariff barriers, which were previously not recognized both in practice and in theory. They are like those related to eco-labeling, as well as labor wages, which they consider as disguised subsidies," Mar'ie said.
The minister then explained long-term prudent fiscal and monetary policies, which are expected to be adaptive to global economic trends. The policies include:
* Maintaining the concept of balanced and dynamic budgeting and improving the budget discipline, both on the earning and the spending sides. On the earning side, the government will consistently enhance domestic revenues, especially those from tax and other sectors. On the spending side, it is necessary to minimize the leaking of the funds and unnecessary spending.
* Taking a contractive budgeting policy to reduce inflationary pressures and avoid the country's economy from overheating. The growth of money supply and bank credits is maintained at a safe level.
* Maintaining the policy of floating exchange rates to safeguard Indonesia's currency stability, as well as improve the competitiveness of Indonesia's export commodities.
* Continuing efforts to reduce the current account deficits by encouraging more non-oil exports, as well as deficits in trade of services.
* Improving the public's savings, to reduce the country's dependence on foreign debts. To reduce its foreign debt burdens, especially those with high interest rates, the government can sell its healthy state firms on overseas stock markets.
* Encouraging the private sectors to generate funds from stock markets, either local or overseas exchanges, to slow down the incoming rate of the private sectors' foreign debts.
* Continuing deregulatory measures, to further cut the country's import tariff levels and remove non-tariff barriers to improve Indonesia's global competitiveness. (rid)