'Indonesia needs to adjust to new realities'

JAKARTA (JP): Bank Indonesia Governor J. Soedradjad Djiwandono said that Indonesia needs to keep adjusting its economic policies to the world's new realities to make the country's economy more competitive.

"Facing a world economy characterized by uncertainties and tough competition, we want to keep making adjustments to these new realities to make our national economy competitive," Soedradjad said at a ceremony for the presentation of Asian Management Awards to five local firms at the Hilton hotel on Tuesday night.

Soedradjad said the government will always adjust its economic policies to new realities by continuing deregulation measures and maintaining prudent macro-economic management.

One keystone element in the foundation of a sound economy, the governor said, is government discipline in the implementation of budgets and in the growth of the money supply, complemented by realistic exchange rates.

He said the government will continue its prudent and consistent fiscal and monetary policies, as they have become the backbone of its macro-economic management.

"Although this policy might be inconvenient for some, at certain periods, it is the only realistic path if we want to achieve the annual 7.1 percent economic growth target," Soedradjad said.

He stressed that the government had pursued a series of deregulatory measures during the last decade, not because it is fashionable to do so, but because the country wants its economy to be efficient across the board.

"To be efficient, we must allow our scarce resources to move in the most optimal manner possible. For this, our economy must be made responsive to market signals. That is the essence of our deregulation policy," Soedradjad said.

The governor said that to ensure efficient utilization of resources, competition must be created. "Future policies will continue to stress the need to be competitive."

With the country's open economy, Soedradjad said Indonesian enterprises are engaged in global competition, even if they are not all engaged in exports. He suggested that local enterprises learn to compete on the world market even when they produce for the domestic market.

"We will be facing an increasingly competitive world even in our own market," Soedradjad said, reasoning that trade barriers and the level of domestic protection will have to be gradually lowered, consistent with the country's commitment to the World Trade Organization and the free trade arrangements in Southeast Asia.

He predicted that increased competition will also be confronted by Indonesian financial institutions in line with the conclusion of the Uruguay Round talks on trade in services, which will give more room to foreign banks and other financial institutions to operate in any country.

He said the trend towards tight competition in the financial sector will lead to a rapid pace of financial liberalization, which will result in the emergence of new banks and non-bank financial institutions.

Along with those processes, Soedradjad said, the role of non- bank financial institutions, such as pension funds, multi-finance and insurances, as well as capital markets will increase rapidly during the coming years.

"All of these developments will create more competition that will serve to challenge banks in the years to come," Soedradjad said. (04/rid)