Private sector drives economic recovery
THE MEGAWATI ADMINISTRATION IS STARTING TO MAKE CONSIDERABLE PROGRESS IN ITS GOALS TO REACTIVATE THE ECONOMY, RESTORE INVESTOR CONFIDENCE, DISPOSE OF STATE ASSETS AND REDUCE POVERTY

SUDIRMAN Central Business District in Central Jakarta.

It has been a long climb out of the economic hole created by the East Asian crisis of 1997-98 when Indonesia’s GDP fell by 20% in 18 months and the rupiah, at one point, lost over 85% of its value against the dollar. After three decades of impressive growth, there was an initial sense of denial in the country that its economy could collapse overnight. Moreover, the sharp rise in public debt resulting from the subsequent bank bail-out which followed the crisis hindered the government’s ability to support economic recovery.

Since Megawati Sukarnoputri assumed the presidency in July 2001, however, a marked improvement in political and economic stability has occurred. Eager to keep the ball rolling, the new government has been busy implementing a comprehensive strategy to reactivate the economy, restore investor confidence, and reduce poverty. The 2002 budget represents a significant milestone on the road to restoring fiscal sustainability and freeing up public resources to address Indonesia’s social and development needs. It highlights the government’s commitment to reinvigorating economic reforms and maintaining close cooperation with the international community.
The end of the political crisis, which has seen four presidents since 1998, also served as the catalyst for the critical resumption of lending by the International Monetary Fund (IMF) and provides the basis for debt rescheduling talks with the Paris Club of creditor governments–essential for Indonesia which still has public debts of around $136 billion, nearly 100% of its GDP.

DR. DORODJATUN KUNTJORO-JAKTI Coordinating Minister of Economic Affairs

Coordinating Minister of Economic Affairs and former Ambassador to the U.S., Dorodjatun Kuntjoro-Jakti, states that, “the first thing that the new administration did was reopen negotiations with IMF. We have been able to finalize the Letter of Intent which was in limbo for over nine months and President Megawati is now appealing to the general public and politicians to join together to create peace, stability, law and order.” These sentiments are reiterated by Minister of Finance Dr. Boediono, who believes that, “the government wants to create a climate which could be called a normalization of the situation–the kind of climate where people can do business normally.” Dr. Boediono also emphasizes the new government’s commitment to a steadfast economic policy. “In the past policies were subject to a lot of change,” the minister explains. “Now we want to determine a rational policy and implement it as consistently as possible.”
In January of this year, the IMF found an encouraging overall performance and agreed to release a further $341 million in loans, part of a $5 billion total loan program. The Consultative Group, a group of international donors chaired by the World Bank, also gave Indonesia a positive review in February. This is heartening encouragement for a government then only six months into its term.

DR. BOEDIONO Minister of Finance

Restoration of private sector economic activity is central to Indonesia’s sustained recovery. In this respect, the 2002 strategy seeks to boost private sector activity and employment by stabilizing macroeconomic conditions, accelerating the return of assets to the private sector, deepening bank and legal reforms, and ensuring that fiscal decentralization proceeds smoothly. Dr. Dorodjatun emphasizes the importance of a quick release on state-owned assets. “What I have to do now, of course, is to recreate the private sector and I really would like to see that the assets that are currently in government hands are soon returned to the private sector. If we can do that, along with our democracy and market, then we will start the journey to economic recovery again.” The government predicts a 3-4% growth for 2002 and a reduction in inflation to single digit figures looks feasible with the recent appreciation in the rupiah. Longer-term growth for 2003 and 2004 is predicted at 6-7%, with inflation reducing to around 5%.

As former president Wahid had said, it is not enough to give the people democracy, they must
also begin to see the economic benefits of it. Dr. Dorodjatun says that he is optimistic about the country’s prospects and believes that these economic benefits are beginning to “be understood” in the country. He says, “now you can travel anywhere in Indonesia 24 hours a day. We have cellular phones, telecommunications, television systems, and one of the freest presses in the world. We want to continue with this.”