Political stability crucial for economic recovery

JAKARTA (JP): Domestic and foreign analysts speaking at a business conference here on Thursday have stressed the crucial role of political stability and a legitimate government to bolster Indonesia's economic recovery.

Speakers at the first day sessions of the two-day Indonesia Forum conference at the Jakarta Hilton Convention Center were unanimous in their view that shortfalls in the country's political system had hindered economic recovery.

Former Australian prime minister Paul Keating said there had not been "commensurate growth in the political institutions in Indonesia", despite growth in the number of middle class citizens, improvements to education and economic growth during former president Soeharto's 32-year rule.

"There have been over 30 years of economic growth, there's enormous economic inheritance here, but there has to be a catch- up in the political institutions," Keating told around 350 domestic and foreign participants at the forum.

He said the country's leader should have legitimacy from his or her own people in order to lead the nation towards recovery.

"Stronger and better things cannot be done with a government whose authority is in question," he added.

Economist Sjahrir noted that the current government lacked legitimacy because many of its key members had in some way contributed to the current crisis.

Sjahrir said the country had accumulated numerous macroeconomic distortions during Soeharto's rule which were now proving to be extremely burdensome.

"The government has been very quick to boast that inflation slowed down in October, that the rupiah is now comparatively stable, and that now we have a better banking sector. But we need proof of all these claims," he said.

He argued that the unclear and inconsistent economic policy of the present government and the tension arising from political conflict has left most people bewildered about what was actually happening in the country.

Dennis de Tray, the World Bank's country manager in Indonesia, observed that the monetary crisis had hit the emerging middle class hardest of all, with average household expenditure in urban areas declining by more than 30 percent.

The monetary crisis "is mainly an urban and Java phenomenon," de Tray said.

This could lead to some tough political problems arising, especially around the time of the general election scheduled for next May, he added.

Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita briefed the meeting on what he saw as strong signs of an initial start on the road towards economic recovery.

Ginandjar said that machinery imports were only slightly below the buoyant levels seen from 1992 to 1994, while exports of manufactured goods rose by 14 percent between January and July and the consumer price index, the main measure of inflation, fell slightly in October for the first time since 1997.

"The restructuring efforts we have put in place are beginning to rekindle economic growth but we need to do more to ensure that growth this time is sustainable," Ginandjar told participants at the conference.

"But we still have a long a way to go," he added.

Many domestic and foreign economists have forecast a contraction of at least 15 percent in the country's economy this year, with minimal growth expected to begin in the second half of next year.

The forum, held in the aftermath of massive anti-government protests across the country, has drawn only half of the 600 participants originally expected to attend. Each participant was charged a registration fee of US$1,000.

Six University of Indonesia students joined the forum's lunchtime session and distributed leaflets calling for a "new Indonesia".

Security concerns forced President B.J. Habibie to inaugurate the conference at the State Palace instead of the Jakarta Hilton Convention Center, which is situated near to the People's Consultative Assembly building. (das)