Vague economic vision causes business disarray

Vague economic vision causes business disarray

Weakness in national leadership has had a more negative impact
than positive impact, according to some economists. The Jakarta
Post's contributor Rikza Abdullah talked to Djisman S.
Simandjuntak, executive director of Prasetya Mulya business
school, who shared his thoughts on the economic vision of
President Megawati Soekarnoputri's administration.

Question: Would you say the government lacks commitment to
policy reform?

Answer: The government apparently has no intention to make
policy reform and has no clear direction in its economic
policies. The business community, therefore, cannot move forward
and make accurate business plans.

Radical policy reform and the redesigning of the basic
architecture of economic policies are very important for the
country to respond to radical changes in the world economy.

Globalization has made it possible for investors to move their
funds -- in the form of either portfolio or direct investments --
from one country to another, drastically altering business
competition. Former closed-market countries like China and those
in Eastern Europe have now opened their markets.

So, we need open, market-driven economic policies supported by
the business community.

Q: Does this mean that Megawati's government has no clear vision
in its economic policies?

A: Look what's happening in the privatization of state firms.
Part of the privatization process has been hampered by protests
by local authorities seeking democratization in the economy. If
the government had a clear vision, it would have been able to
find a legitimate form of privatization in line with economic
democratization.

Q: What has caused this lack of vision? Is it because of
Megawati's choice of economic advisers?

A: Her aides actually include senior consultants Ali Wardhana and
Widjojo Nitisastro. They became great (several years ago) because
they then worked under the strong leadership of former president
Soeharto. If they now perform poorly, it is probably because they
are working under the weak leadership of Megawati.

Her lack of leadership can be seen from the recent conflict
among her ministers on Indonesia's cooperation with the
International Monetary Fund. Another indication of her weak
leadership is the prolonged legal uncertainty caused by very poor
law enforcement.

Q: What are the good points of her leadership?

A: She has acted positively in the development of monetary
affairs, banking and the state budget. She's been able to
stabilize the rupiah's exchange rate. This is related to
improvements in the balance of payments due to the return of
capital to Indonesia, which flew out of the country during the
crisis.

The rupiah's stability has helped curb inflation, even though
the year-on-year inflation rate is still in double digits.

A positive development in banking has been the improvement in
the health of banks' operations after the sale of part of their
assets by the Indonesian Banking Restructuring Agency (IBRA).

As for the state budget, Megawati's administration has been
able to reduce its budget deficit by reducing subsidies.

Q: And the shortcomings?

A: The long list includes slow economic growth, high
unemployment, the decline in exports and imports, weak investment
promotion, the slow disposal of assets by the IBRA, slow
privatization, the absence of progress in dealing with bad
debtors and the eradication of corruption, poor law enforcement,
the poor management of security and the lack of commitment to
reforming policies.

Q: Could you elaborate?

A: Our economy grew by 2.5 percent during the first half of this
year, far lower than the annual 4 percent growth in 2000. The
decline of exports and investment indicates that economic growth
is supported by domestic consumption. We cannot continually rely
on this because so far we do not know where consumers get their
money from. Most probably, the money is from the liquidation of
their assets.

We need export-led economic growth because we are in dire need
of foreign exchange earnings to service external debts and to pay
obligations related to foreign investments. True, the decline of
exports was partly caused by the slowdown of the world economy,
but we would have been able to boost our exports if we had
directed past investments to export-oriented industries, instead
of projects destined for the local market.

The decline of imports (by 25.8 percent in the first quarter
of this year and by about 5 percent in the second quarter,
according to the latest quarterly report of Bank Indonesia) also
indicates the slowdown of investment activities, which
traditionally rely mostly on imports of machinery and
intermediate products.

The combination of the decline in investment and exports has
affected economic growth and worsened unemployment.

Moreover, the absence of progress in the dealing of bad
debtors and the eradication of corruption, poor law enforcement
and management of security have created a bad perception of
Indonesia's business and investment environment, particularly for
foreign investors.

Q: What would improve the economy?

A: Because the economy is very much affected by debt services,
the government should reduce debts by repaying its debt
principles. There are three options to obtain funds for their
repayment. First, it could accelerate the privatization of state
companies and the sales of assets currently held by IBRA.

Second, it could activate the secondary bond market, so the
bonds for the restructuring of banks could be refinanced with the
capital to be generated from the sales of new bonds at the time
of their maturity. Third, the government should take bold
measures to accelerate economic growth, so that the government
can increase revenue from taxation.