Mon, 14 Jul 2003

`Macroeconomic gains yet to boost growth'

The Jakarta Post, Batu, Malang

The current strengthening of the country's macroeconomic indicators has yet to be converted into robust growth in the real sector of the economy due to lingering problems in other areas, Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti said on Sunday.

He said that to help turn around the situation, the business climate at home must be improved through the acceleration of economic reform.

Dorodjatun was speaking at the opening of the 15th annual congress of the high-profile Indonesian Economists Association (ISEI).

Since the beginning of the year, the rupiah has been rapidly appreciating against the U.S. dollar, largely due to the weakening of the greenback against major currencies. The strengthening of the local unit has greatly contributed to the current benign inflation environment. This situation has allowed the central bank to continue cut down its benchmark interest rate.

Dorodjatun acknowledged that the increasingly stable macroeconomic picture has created a virtuous circle within the economy as the stronger local unit has attracted a bigger flow of portfolio capital, which facilitates the government's privatization and asset divestment programs.

He added the declining trend in the Bank Indonesia interest rate has reduced the government's burden in servicing its huge domestic debts.

But private sector investment still lags behind due to various uncertainties, he said.

Dorodjatun explained that to help remedy the problem, the government was determined to press ahead with reform programs aimed at boosting the investment climate and reinvigorating the real sector.

He said that one of the programs were to push banks to allocate a greater amount of credit to the small and medium-sized enterprises (SMEs).

He said that for 2003, the amount of the bank loans to the SMEs sector was estimated to have increased to Rp 42 trillion, compared to around Rp 32 trillion allocated last year.

Another effort was to revive the development of key infrastructure projects which were stalled in the wake of the late 1990s economic crisis, Dorodjatun said.

President Megawati Soekarnoputri last week relaunched dozens of the stalled projects.

Dorodjatun said that another area of reform was boosting institutional capacity. "This is an ongoing process," he said, pointing out as an example that improving the legal system could not be done overnight.

He added that currently there were around 50 bills relating to the economy and investment sector awaiting to be approved by the House of Representatives. If the bills were approved, legal certainty in the country would "be much better".

ISEI chairman Bambang Sudibyo had similar view, saying that the poor investment climate at home prompted foreign investors to put a risk premium on Indonesia.

He said that the current ISEI meeting would be closely followed by the public as the economists grouping was expected to come up with ideas on how to resolve the pressing problems of the economy particularly as the country was about to end its current program with the International Monetary Fund.