No fiscal stimulus from govt: Minister

The Jakarta Post, Jakarta

Coordinating Minister for the Economy Dorodjatun Kuntjoro- Jakti said the government would not provide fiscal stimulus to boost investment, as this would have a negative impact on the overall economy.

"The only real way to provide stimulus is by increasing the (state budget) deficit. Not only is this contrary to our mandate from the People's Consultative Assembly and the House of Representatives, but it triggers exactly the kind of fears the government is trying to lay to rest. Instead of triggering investment, such a stimulus triggers capital flight and inflation," the minister said in a speech at a workshop on the government's macroeconomic policies on Thursday.

He added that a looser monetary policy by the central bank also would not push economic growth.

Dorodjatun's statement comes as some businesspeople call on the government to provide a fiscal stimulus package to bolster investment activity and push economic growth. The House of Representatives is currently debating the government-proposed 2004 state budget, which has been criticized by some for lacking stimulus for the economy.

Dorodjatun said the government was committed to maintaining current macroeconomic stability, with an outlook on further declines in the budget deficit and the government debt to gross domestic product ratio.

"Our macro strategy is working," he said, pointing to the current strengthening in the rupiah, lower inflation and declining domestic interest rates.

He acknowledged, however, that macroeconomic stability had not translated into brisker investment activities.

"Security, infrastructure and other problems are concerns as well," he said, adding that legislative elections next year and the decision by the government not to extend the existing International Monetary Fund economic bailout program when it expires later this year were creating nervousness among some investors.

"The government is confident that the 2004 elections and our transition from the IMF program will go well, but it is understandable if investors remain cautious," he said.

Dorodjatun said that as a consequence of ending the IMF program, there would be a significant financing burden for the country which would likely persist until 2007.

"This burden will have to be met by the government issuing new domestic and foreign bonds. This limits our room to maneuver and leaves us captive to investor sentiment," he said.

He said the government's exit strategy from the IMF was designed to accommodate the above concerns.