President Soeharto's State of the Nation Address
President Soeharto's State of the Nation Address
Following are excerpts of the state address given by President
Soeharto before the House of Representatives on the occasion of
the 52nd anniversary of Indonesia's Independence Day Aug. 17.
During the last general election, we carried out campaigns in
the form of dialogues. Although open and mass campaigns were
still carried out, these were complemented with other forms of
campaigning that allowed the general election's contesting
organizations to conduct direct dialogues with the public or to
capitalize on the use of electronic mass media.
Through the general election campaigns, the three contesting
organizations offered their development themes and programs. They
also focused their attention to a host of development issues.
These dialogues also revealed the people's aspirations that may
serve as materials for the people's representatives in drafting
the next 1998 Guidelines of State Policy.
As in the previous general election, nine out of ten eligible
voters exercised their rights. The general election took place
openly and the public participated very seriously in it, as did
the mass media, whether local, national or even international. No
one can deny the fact that 90 percent of the Indonesian people
exercised their voting right, the most concrete political right.
There are not many countries in the world that equal this feat.
Indeed, beside these successes, there were some disturbances
that claimed victims in various places. We are concerned about
the tragic events. We offer our deepest condolences for their
deaths. These disturbances were excesses during the campaigns due
to over-enthusiasm and as a result of an emotion that easily
flared up during an event that involved a big mass. Quite often
the campaigns in an open field were attended by tens, and even
hundreds of thousands of people. These were often started and
ended by convoys that opened the possibility of excesses in the
form of mass brutality, accidents and clashes between supporters
of one general election contestant against other rival
organizations. Or clashes between the masses and security forces
who had the duty to maintain law and order and security as well
as protect the public safety.
In entering the new era where everything is so open, in which
the force of information flow cannot be easily stemmed, we must
never underestimate the potential dangers threatening the unity
and cohesion and, in fact, the very fabric of our nation's life.
These threats may come from everywhere, both from within or
without or a combination of both. We must confront them jointly
by adhering strictly to the lofty values of life enshrined in
Pancasila and the 1945 Constitution. We should steadfastly hold
to the course we are pursuing.
The opening horizon and knowledge as a result of information
explosion makes us constantly dissatisfied. This trend is in
itself sound, because the desire to get better things serves as
a strong impetus to work even harder. This trend can also have a
negative impact when it stimulates the desire to make a shortcut,
when the end justifies the means. Worse even when unlawful and
unjust acts are committed.
The openness of the society may also endanger our young
generation through the infiltration of negative influences via
various media and information. The people's progress and the
modern life's hectic schedules may have an impact on family life
and make our children drift apart from their parents. Drug abuse
is a major issue, and therefore we must be vigilant and overcome
it seriously.
The prosperity and peace in a region will enhance prosperity
and world peace. This is the reason why we give primary attention
to the relations with neighboring countries and cooperation in
this region.
Entering its 30th anniversary, ASEAN has become a growingly
mature regional organization. There are more concrete
cooperations, so that this region has become more peaceful,
stable, advanced and prosperous. In the not-too-distant future,
in just another five years, this region will become a free trade
area.
In its evolution, ASEAN has expanded its membership. All
nations in this region, irrespective of their cultural
backgrounds and political systems, may benefit from this regional
cooperation and, in turn, reinforce it. Last year Vietnam was
admitted as a full-fledged member, followed this year by Laos and
Myanmar. We hoped that Cambodia would join this year, but it
looks that she still has to solve her internal problem. We hope
the process towards its solution will proceed quickly and
peacefully. Without intending to interfere in the domestic
affairs of other countries, Indonesia, together with other ASEAN
member-states, stand ready to help if it is requested by the
conflicting parties in that country.
Meanwhile, there are still upheavals in other regions that
affect the stability of their respective regions and, to a
certain extent, may create wide-ranging consequences. In the
Middle East, the peace process continues, we deeply regret, to
face obstacles. Indonesia is concerned about these developments,
and hopes that peace negotiations are resumed so that the
Palestinian people in particular and the Arab world in general
shall regain their legitimate and just rights.
We live in a fast-changing world. The world seems to become a
huge economic entity. Quite often what takes place in a country
or region will immediately have an impact on another country or
region. Mankind is entering a new age: an open global economy and
free trade.
The recent upheavals affecting the currencies of several
countries in the Southeast Asian region has been a concrete
evidence of the adverse impact of an open global economy.
It started with the Thai baht and then spread to other
currencies, including the rupiah. Apparently, this has been
caused by two reasons. Firstly, there has been a change on the
market perception of the economic conditions and prospects of
countries in the region. Secondly, it is a fact that the U.S.
dollar tends to continue its appreciation vis-a-vis almost all
other currencies in the world, due to the very good economic
condition of the United States. As a result, the rupiah
--together with other currencies-- have depreciated against the
U.S. dollar. The speculative actions by certain individuals have
worsened the situation and raised the market sensitivity.
By taking market forces into account, the government has taken
some measures to soften the onslaught against our rupiah.
As we all know, the government has decided to abolish the
rupiah intervention band spread. The rupiah exchange rate is
determined by the market, while the government may intervene
indirectly through fiscal and monetary policies. This is the
continuation of measures to prop up the flexibility of our
foreign exchange rate system through band spread interventions
that were carried out eight times since 1992.
The experience of countries in this region and in other
regions as well shows that with the increasingly large flow of
funds on the global level, it is difficult to maintain the
exchange rate of a currency which is tied to other currencies or
a basket of currencies. In such a situation, the effort to
maintain an exchange rate at a certain level is ineffective. The
recent experience in a number of countries in this region --and
also in several developed countries-- the intervention to
maintain a certain exchange rate level apparently failed, despite
the substantial amount of foreign exchange reserves which were
used. Therefore, the majority of countries in the world are now
relying on a flexible foreign exchange rate system.
The experience of other countries also shows that the
transition towards a flexible foreign exchange rate system has
always been marked by excessive exchange rate upheavals. But it
is of a temporary nature and, with the appropriate policy and the
calmness of domestic players, the exchange rate will find a new
equilibrium in line with the prevailing economic fundamentals. At
present, Indonesia's economic fundamentals are very solid. During
this transitional period, the relatively tight fiscal and
monetary policies will be maintained until the market situation
is calm again and the exchange rate becomes relatively stable at
a new level of equilibrium. Our business community should
immediately adjust itself to this new situation.
We notice that any currency can fluctuate very quickly. The
exchange rate fluctuation of one currency can quickly affect
several other currencies. This fact can not be ignored by any
country or economic player. The recent experience has taught us a
valuable lesson that in a situation full of uncertainties and
upheavals, the economic fundamentals condition is very important
and decisive. We notice the tradition of prudent macroeconomic
measures we have been adopting plays an increasingly pivotal role
as a security anchor of our economy. Our determination to
accelerate development must be accompanied by our wisdom of
sparing ourselves form the enthusiasm itself, that may lead us to
be severed from this security anchor.
I appeal to our business community, whether those involved in
the financial sector or otherwise, to seriously understand these
new realities. They shall all discover that foreign loans
are no longer easily and cheaply obtained like before the storm.
All parties concerned are reminded by the recent events to act
prudently in borrowing, in order not to rely excessively on loans
to finance their business and to seek safer and steadier ways of
funding. All are called upon to make a rational and realistic
projection about the growth of their business.
Furthermore, in a situation where currency fluctuation may
happen at any time, the business community is demanded to
seriously take into account the risk of currency fluctuation in
their business operation and project implementation. They have to
get used to protecting themselves from this currency risk by
capitalizing on the existing instruments. These are all normal
business practices in many advanced countries.
The recent events have also made us realize the importance of
closer relations amongst nations to face regional and
international monetary upheavals. In the end, all of us,
particularly countries in the Asia-Pacific area, will need a
common safety network system to address these global upheavals.
I would like to repeat my appeal to all APEC economic leaders
during the meeting in Seattle, the United States, three years
ago, that developed and economically-strong countries in the
Asia-Pacific region should play an appropriate role in line with
their potentials and positions to establish such a common safety
network.
Upheavals and speculations will always happen from time to
time. The key rests in our own economic resilience, on the
resilience of our business community, on our own self-confidence
and on the congruency of views between the Government and
economic players at home.
In the effort to overcome the alarming situation in the ASEAN
region, especially what took place in Thailand, Indonesia warmly
welcomes the policy package adopted by the Thai Government to
shore up its economy. Indonesia appreciates the initiative taken
by the International Monetary Fund (IMF) to assist the Thai
government to recover from its economic difficulties. As a
manifestation of ASEAN solidarity, together with other countries,
Indonesia has provided a stand-by loan to the tune of US$ 500
million. Indonesia hopes that the Thai economy will fully recover
soon. This is very important for the maintenance of economic
stability in the ASEAN region and, in turn, our economic
stability too.
Our economic stability is demonstrated by, among other things,
the controlled inflation rate and the foreign exchange reserves
that are maintained within a safe limit.
In fact, the inflation rate tends to continue to decline. At
the start of REPELITA VI, the inflation rate was still 9.2
percent. Gradually, it was lowered to 8.6 percent in 1995 and 6.5
percent in 1996. As a matter of fact, when it is calculated
according to the fiscal year, the inflation rate in 1996-'97 was
5.2 percent, which means that it moved closer to the target set
for the end of REPELITA VI. Another encouraging phenomenon is the
declining rate of price increases of foodstuffs from 13.3 percent
in 1995 to less than half of it, i.e. 6.1 percent last year. This
is important because more than half of the expenses spent on
public consumption was still on food.
We are increasing production capacity and ensuring equitable
distribution in a sustainable manner through, among other things,
the adoption of several debureaucratization and deregulation
measures.
These various efforts have consolidated a sounder import and
export balance. The measures to control the people's and
government's demands have slowed down the import rate. In 1995-
1996, the import rate reached 21.6 percent and it went down
sharply in 1996-1997 to 10.4 percent. However, we still have
difficult homework. We must work hard to increase further the
export rate which has recently tended to slow down.
By controlling the import rate, we have succeeded in curbing
the increasing rate of the current account deficit. Whereas
during the previous three years, from the last year of REPELITA V
until the second year of REPELITA VI, the ratio between the
current account deficit vis-a-vis gross domestic products has
risen from 1.9 percent to 3.4 percent, for 1996-1997, it went up
by only 0.1 percent to become 3.5 percent. Among countries that
are also growing rapidly in our vicinity, this figure is among
the lowest.
Although the current account deficit is expanding, the balance
of payments remains safe as a result of the substantial inflow of
capital. The potential of foreign exchange reserves to finance
import has in fact increased, i.e. from 4.6 months at the end of
1995-1996 to 5.5 months last July.
Economic growth is an important development indicator, because
increased production and national income show higher economic
potentials of the people.
Until the third year of REPELITA VI, our economy has grown
with an average of 7.9 percent annually. This growth rate is
quite high compared to the average goal set for REPELITA VI, even
after being revised, i.e. 7.1 percent annually. According to the
latest count, the economic growth in 1996 reached 7.98 percent.
This is higher than the provisional estimate released to the
public some time ago, which was 7.82 percent.
With such an economic growth and the population growth rate
which we have lowered to 1.58 percent, our per capita income in
the third year of REPELITA VI has become US $ 1155. Compared to
the figure at the start of REPELITA I, then our per capita income
has multiplied by 16 times.
Such a high economic growth was spurred by the great
enthusiasm in investment. In the past 1996-1997 fiscal year, the
approved domestic investment reached more than Rp 105 trillion),
which means an increase by around 20 percent from the previous
year. The number of approved foreign investments continues to be
high, although not as high as the previous year. The value of
approved foreign investments totaled US$ 26.6 billion.
These investments are part of our national investment. The
data in the national income statistics --which recorded the over-
all national investment-- also show the high investment
enthusiasm. The average real investment rate during the three
years of REPELITA VI is 12.8 percent.
In terms of production, the non-oil/gas processing industry
has grown at an average of 12.8 percent annually during the three
years of REPELITA VI. We make this industry the motor of
development. As a whole, the role of the non-oil/gas processing
industry sector in the national production continues to become
more important from around one-fifth in 1990 to more than a
quarter in 1996. The enhanced role of this sector has also been
accompanied by the growing number of business units in this
sector that surpassed the average growth of similar units as a
whole. According to the preliminary data of the 1996 Economic
Census, during a one-decade period, the number of units in this
sector rose to around 6 percent annually. This is far higher than
the average growth of all sectors of 2.9 percent.
In line with the industrialization process, the share of the
agricultural sector in the national product is expected to
continue to decline. However, its share in the economy remains
extremely vital, as a source of foodstuffs, as basic materials
for industry and also as a source of income for millions of
farmers. The availability of food does not indeed have to be
produced by ourselves. But the number of our population today
reaches more than 200 million. Although its growth rate is slow,
but in absolute terms the population growth rate is still quite
high. Unless this situation is followed by the ability to produce
adequate foodstuffs, it will become a source of vulnerability to
the national economic resilience.
The agricultural development has increased the number of
available foodstuffs; such as rice, maize, vegetable oil, meat,
eggs, and fish. At the same time, the average per-capita/day
energy and protein requirements have reached 3208 kilocalories
energy and 73.1 grams protein. This means that we have exceeded
the recommended requirement of 2500 kilocalories energy and 55
grams protein. Meanwhile, the average consumption of energy per-
capita/day has reached almost 2020 kilocalories, as it draws even
closer to the recommended figure of 2150 kilocalories. As far as
protein is concerned, the average per-capita/day consumption has
reached 54.5 grams, higher than the recommended 46.2 grams.
Agricultural development cannot be separated from the support
of other sectors, especially the irrigation. Irrigation
development during 1996-'97 has extended irrigated areas to
68,000 hectares, both in the rain-water catchment areas or by the
opening of new production areas and the making of new 120,000
hectares of paddy fields.
Development of other economic infrastructures such as
transportation, telecommunications and power stations-- has
stimulated higher production and smoother flows of goods and
services as the bloodline of the economy. The development of
infrastructure has stimulated the growth of residential and
housing complexes, especially people's housing.
The increasingly extended and improved quality of these
infrastructures has also allowed the potential to exploit
physical and non-physical resources, including tourism. The
number of foreign tourists who came to Indonesia during the third
year of REPELITA VI reached 5.1 million, one and a half times
more compared to that when we started the current development
plan. They have spent US$ 6.2 billion in Indonesia.
The eastern part of Indonesia has apparently posted a better
economic growth than the Western part. In 1994 and 1995, the
economic growth in the Eastern part was 8.6 percent and 8.2
percent respectively. During the same period, the Western part
had a growth rate of 7.2 percent and 7.9 percent. One of the
influential factors on rural development is human resources. This
is especially true in the Eastern part where the population is
scarce, so that the transmigration program plays quite an
important role.
Equitable distribution of development -- whether intra-regions
or intra-income-earner groups -- is indeed a major endeavor in
REPELITA VI.
In this connection, the poverty alleviation program draws the
greatest attention. The Least-Developed Village INPRES-IDT)
program --entering its fourth year-- is one of these high
priority programs. The result has been the greater decline in the
number of poor people between 1993 and 1996. During this period,
the number of poor people went down by 3.4 million or 13.1
percent compared to the decline that took place three years
earlier --i.e. from 1990 to 1993-- which was 1.3 million or 4.8
percent.
The effort that we have been carrying out for a long time and
we shall continue to improve it, is the Small-Scale Enterprise
Credit (KUK). To provide sufficient supply of capital for small
enterprises, the minimum credit line for KUK is raised from 20
percent to 22.5 percent. To ensure that this is an opportunity
worth seizing, additional technical assistance is also provided.
This is executed through various activities, such as the Small-
Scale Enterprise Development Project, Bank-Non-Governmental Group
Relations Project and Micro-Credit Project. The rural financial
institutions also play a role through the cooperation between the
Small-holder Credit Bank and the public bank. In addition to
these efforts was the obligation of (state-owned banks) to
provide Business Feasibility Credit (KUK), with a simplified
system and softer terms. With these measures, the minimum ratio
of the KUK as a whole was surpassed in 1996, i.e. it reached 22.6
percent.
In the context of intensifying rural cooperatives activities,
efforts are being made to enhance public confidence in
cooperatives which is accompanied by institutional reforms and
improvement. As a result, there is a greater number of Village
Unit Cooperatives (KUD), Self-Supporting KUD and Self-Supporting
Nucleus KUD, which are widely spread.
Whereas in 1993 the number of Self-Supporting KUD was more
than 6500 units, it grew to over 6700 units in 1996, spread in
3500 Sub-districts or about 97 percent of all the subdistricts
that need the KUDs. In every district there is also at least one
Self-Supporting Nucleus KUD that functions as the motivator to
stimulate the growth of cooperatives in the surrounding areas.
Today, there are more than 3300 Self-Supporting Cooperatives
in all Indonesian cities, consisting of 1900 employees'
cooperatives and over 1400 other urban cooperatives. In each
municipality there is at least one Self-Supporting Nucleus Urban
Cooperative that also serves as the motor in stimulating the
growth of cooperatives in the surrounding areas.
The number of cooperatives members has risen from around 24.6
million in 1993 to more than 27 million in 1996. Its business
volume also grew larger, from around Rp 9.5 trillion in 1993 to
Rp 12.5 million in 1996.
Besides new employment opportunities, continued attention is
always given to the workers' welfare. Pursuant to the mandate of
the 1993 Guidelines of State Policy, it is envisaged that in
REPELITA VI the regional minimum wage should gradually meet the
minimum basic needs. In 1996, the regional minimum wage reached
92.5 percent of the minimum basic needs. We hope this target will
be reached by the end of REPELITA VI.
However, increased wage must be accompanied with higher
productivity. Otherwise, we will lose our competitive edge.
This must not happen, precisely at a time when the enhancement of
competitive edge is greatly needed.
One of the principal pillars for the quality improvement of
human resources is educational development. Its primary goal is
equitable distribution of educational opportunities. This is
demonstrated by, among other things, the gross participation rate
(APK), namely the ratio between the number of students of a
certain educational level and the number of people belonging to
the age group of the same educational level.
The APK at the public and Islamic primary schools level has
surpassed 100 percent, whereas the APK at the public and Islamic
secondary schools level has reached 68.7 percent. At the higher
education level, the rate is also heartening. At the time when we
started development, the number of students was only around
160,000; but in 1996-1997 it grew to approximately 2.5 million or
an increase by 15 times.
Window A: Upheavals and speculations will always happen from time
to time. The key rests in our own economic resilience, on the
resilience of our business community, on our own self-confidence
and on the congruency of views between the Government and
economic players at home.
Window B: Our economic stability is demonstrated by, among other
things, the controlled inflation rate and the foreign exchange
reserves that are maintained within a safe limit.