Positive outlook for RI obscured by reports

Irawan Abidin, Former diplomat, Jakarta

There is today a great deal more pessimism about Indonesia and its economic prospects than is warranted by the facts.

The pessimism is understandable: Indonesia has a number of serious problems as a result of the lingering effects of the Asian financial crisis that devastated the region in 1997 and 1998, with Indonesia being the hardest hit of all the affected economies. So hard hit was Indonesia that it suffered social turmoil and a political crisis.

But there is also reason for optimism that should outweigh all pessimism that has been expressed about Indonesia.

In the first place, we have a democratically elected government that is firmly committed to the reform of all aspects of the national life. These reforms are difficult to achieve and it will take some time before they are all instituted and consolidated.

For example, the reform of the military establishment has to be at a pace that does not disrupt national stability. Moreover, reform becomes more meaningful if conducted from within by the military establishment itself, rather than imposed from the outside.

Another example is the reform of the relationship between the local governments and the central government: The previous administration tried to rush the implementation of this reform, with fairly adverse results. Now President Megawati Soekarnoputri is trying to correct the defects of local autonomy laws that were half-baked and implemented rashly.

But reform will continue until they pervade Indonesian government and society. In the long term, there is no doubt that the reform movement in Indonesia will succeed, in spite of its current difficulties.

As to the national economy, we can be guardedly optimistic that Indonesia will be able to attain modest growth this year, perhaps by as much as four percent as projected by the government. Last year, the Indonesian economy grew by 3.32 percent, which was less than the projected 3.5 percent, but we should be thankful that we had any growth at all, considering that the most dynamic economy in the region, Singapore, contracted by 2.16 percent, and another dynamic economy, Malaysia dropped from a positive growth of eight percent to a flat zero.

What saved the Indonesian economy was robust domestic consumption, which grew by an amazing five percent, although such growth is very fragile. Because the government expects the confidence of the Indonesian consumer to remain vigorous, it has projected the economy to grow by four percent. If the United States, which is one of the major markets for Indonesian exports, rebounds strongly from the recession suffered last year, then it is just possible that growth this year might be higher than four percent.

There have been also recent signs that foreign investors have renewed interest in Indonesian assets.

These positive developments have moved the senior representative of the International Monetary Fund (IMF) in Indonesia to predict that the country's economy would become more investment-driven, provided the government can strengthen the national investment environment.

Another positive development is the stability of the rupiah.

One more reason for confidence is the fact that both the IMF and the World Bank fully support Indonesia's tight macro-economic program.

The positive signs are quite clear, even if they are somewhat obscured by a lot of negative publicity about Indonesia.