Smooth election unlikely to spark boom: Economist

Smooth election unlikely to spark boom: Economist

Rendi A. Witular, The Jakarta Post, Jakarta

A smooth general election process is unlikely to lead to a
reduction in Indonesia's risk premium nor mark the beginning of
an economic boom, global financial advisor Morgan Stanley said.

Daniel Lian, Southeast Asia chief economist for Morgan
Stanley, said that the new government and lawmakers would face a
daunting task in addressing a number of economic problems, as the
Indonesian economy suffered from unfavorable trends and negative
dynamics.

"They (global investors) believe a smooth election process
will dramatically improve Indonesia's macro (economic) outlook,
while an undesirable result could make things worse. We believe
that is a rather naive view," said Lian in a seminar on Tuesday.

In his report, Lian said that Indonesia's economic growth
remained unimpressive and unbalanced although the economy had
recovered relatively from the 1998 regional financial crisis.

He explained that Indonesia's cyclical prospects were stable
but not outstanding because the country, based on a Morgan
Stanley forecast, would only grow by 4.5 percent this year, well
below the 7.3 percent and 5.7 percent forecast for Thailand and
Malaysia respectively.

Indonesia's economic growth was also unbalanced as it remained
largely dependent on private consumption, which accounted for 88
percent and 84 percent (estimate) of the country's growth in 2003
and 2004 respectively.

In the case of Thailand, robust private consumption over the
past two years was slowly being replaced by strong private
investment and exports. In Malaysia, big government spending was
being replaced by stronger private investment fueled by small and
medium enterprises growth and export expansion.

Lian said that exports had failed to emerge as a major growth
engine in Indonesia, and it had become increasingly tied in to
demand from China.

"A slowdown in the Chinese economy ... will hurt Indonesia
relative to its peers in Southeast Asia," said Lian.

Lian also emphasized the limited fiscal options open to the
government to salvage the economy in the event of a dramatic
decline in global demand and rising interest rates, as the
country continued to adhere to the extremely prudent fiscal
environment inherited from the International Monetary Fund.

Lian said that effective economic leadership and a well-
thought-out pro-growth development strategy were the keys to
improving the country's long-term economic future.

He also said that policymakers must establish a long-term
development blueprint that included two key features; first,
carrying the debt burden -- instead of rushing to pay it down,
trade it for faster and more even and equitable growth; second,
Indonesia must develop its own indigenous economic development
model that accorded with local conditions.

Based on the Morgan Stanley estimate, Indonesian gross
domestic product (GDP) in 2004 would finally recover to its pre-
crisis level. But in per capita terms, recovery might only be
achieved in 2005.

However, the recovery still lacked substance as poverty
levels, wealth and income distribution had not improved much, and
the unemployment and underemployment rates had risen.

Ruster

SBY-Jusuf duo vows to boost local investment

Vice presidential candidate Jusuf Kalla has pledged to
encourage stronger domestic investment to help improve the
country's economy rather than depending on foreign investment
inflows.

"Our focus for improving the country's economy is to empower
local economic players in a bid to replace dependency on
difficult-to-find foreign investment," said Kalla during a
seminar held by Morgan Stanley on Tuesday.

Kalla has paired up with the Democratic Party's presidential
candidate Susilo Bambang Yudhoyono for the upcoming presidential
election on July 5 and a possible run-off on Sept. 20. According
to the polls, the Susilo-Kalla pairing is ahead.

Kalla, who recently resigned from his post as coordinating
minister for people's welfare, said that one of the ways to
encourage domestic private investment was to boost government
spending on infrastructure.

He said that there were several concrete steps that could be
taken by the government to bring this about, including issuing
bonds to finance the development of toll roads, ports and
telecommunications networks.

"A boom in domestic investment may be expected to reduce the
country's high unemployment rate," said Kalla, a businessman
turned politician. -- JP