| |
(Sadli, 22 July 1999)
The best topic for a July editorial of this Bulletin is to refer to the newest agreement between the government of Indonesia and the International Monetary Fund, which will dominate government monetary, fiscal and economic reform policies for the next two months. The agreement takes the form of Letter of Intent, signed by the Indonesian Government. Hence it reflects the government view, usually optimistic, but of course there were lengthy discussions with the IMF.
The following reflects the opening tone and the overall view.
- Market sentiment has improved markedly since the last review, helped by the peaceful completion of the June 7 parliamentary elections. No loss of policy momentum is envisaged during the transition to a new government, and bank and corporate restructuring policies have been further strengthened.
There remains a strong consensus for the economic program and its continuity is expected to be well safeguarded.
Macroeconomic Framework and Policies :
The following improved growth and inflation outcomes are now targeted by the program's revised macroeconomic framework:
Key Macroeconomics Objectives, 1999/2000 (April 1 - March 10) :
Real GDP growth: 1.5% to 2.5%, Inflation (end of period): 4% to 5%, Inflation (average): 10% to 12%, External current account balance: US$2.5b (1.5% of GDP), Gross official reserves (end-period): US$27.5 to US$28.5 billion.
Growth prospects are benefiting from improving market sentiment, higher agricultural incomes, and recovering consumption demand. March-May export performance has also been encouraging. Growing confidence is being reflected in the return of some capital from abroad and a recent sharp rise in the stock market. Price declines in each of the past four months, and the strengthening rupiah, should entrench single digit inflation during 1999. The external objectives of the program should be well achieved. The flexible exchange rate system is accommodating the appreciation of the currency toward its medium-term equilibrium, and enjoys wide consensus.
- The macroeconomic policy mix is becoming much more supportive of recovery. In fiscal policy, achieving a deficit of 5.8 percent of GDP remains the principal focus. We are determined to safeguard the fiscal stimulus, and have taken the following measures to avoid renewed spending shortfalls:
(i) rehabilitation programs have been accelerated for regions hit by the recent social disturbances;
(ii) allocations for infrastructure maintenance and rehabilitation have been advanced; and
(iii) implementation of foreign-assisted projects is being stepped up by increasing provisions for their local costs and streamlining budget authorization procedures.
- Monetary policy has delivered, over the past year, very positive outcomes in terms of price stability, significantly lower interest rates and positive interest rate spreads. The exchange rate of the rupiah and the stock market prices have strengthened markedly. The one-month SBI rate is now about 16 percent, half its level just two months ago, and we see room to guide interest rates down cautiously further. The quantitative monetary program remains appropriate.
So far the optimistic tone of the government but supported by the IMF. Pundits of course will not let such exuberance pass without critic. The Dean (age: 82) of Indonesian economists, Prof. Sumitro Djojohadikusomo, said: "I would not be that optimistic (about inflation rates), considering the possibility of political 'turbulence' in the running up to the upcoming presidential election and the transition to a new government. The inflation rate for the current fiscal year would stay in the two-digit range, between 10 and 15 percent."
The political situation at the moment is still murky and whether a Megawati, a Habibie or a "dark horse" president will arise, the betting chances are widely variable. Megawati's supporters give her at best a 60% chance.
For economic policies it will not make much different who will be president. There will be a continuity of economic policies and the IMF, World Bank and other donors will still exert their influence, and that is also good for the country because it is an insurance against unrealistic policies.
But if the "wrong" government will come up, it may invite confrontations with the students' movement, while parliamentary relations will be difficult.
|
