Govt to maintain prudent monetary, fiscal policies

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)