Financial markets will be watching the new
administration’s early decision on the matter of energy subsidies — failure to
tackle the issue forthrightly will result in a loss of confidence. It is
therefore heartening to see both presidential candidates are willing to take
strong action in this area.
A more
rational allocation of scarce fiscal resources is necessary — a shift is needed
away from wasteful and untargeted subsidies toward more spending on health care
and education that focuses directly on the poor and needy. Resources have to be
released to be spent on the infrastructure improvements that alone can ensure
the growth of well-paying jobs in manufacturing and services.
The new
president should exert leadership by building a new consensus on the best
balance of policy between (a) spending government money on immediate support
for the poor through subsidies and other social spending and (b) longer term
spending on constructing infrastructure and building human capital through
spending on vocational institutes and universities.
Fourth,
Indonesian business would like to see monetary and financial stability so that
we are not thrown off track every few years by stresses related to high
inflation or excessive external deficits.
Too
often, a surge in Indonesia’s growth has been brought to a halt by a spike in
inflation or by swelling external deficits that cause the rupiah to tumble.
Indonesia must break this cycle and it can do so by giving Bank Indonesia
greater independence to set monetary policies that bring inflation down and
restrain the excess demand that destabilises the external accounts.
At the
heart of recent challenges to the business sector, such as the sharp weakening
of the rupiah in 2013 and rising costs of production, is monetary policy. Bank
Indonesia should be given a target of bringing inflation down from the current
5 percent or higher to closer to 2 or 3 percent over a period of time. If this
succeeds, interest rates will fall and bring the very high cost of capital for
businesses down.
Such
stability can only be ensured through a robust system of supervision and
regulation of the banks and other financial institutions. Indonesia has made
much progress since our own terrible crisis in 1997 but more needs to be done
to improve financial regulation.
Fifth,
we need policies to substantially boost the manufacturing sector.
We need
to understand why, despite the very good headline growth of recent years,
employment in the formal sector has been lackluster. One basic reason is that the
manufacturing sector has been more capital intensive than labor intensive.
Apart from the poor infrastructure referred to above, manufacturing has been
held back by a weak business climate that scares away foreign as well as
domestic investors.
One key
element in the business environment is labor regulations. Well-intentioned
policies to protect labor may well have hurt workers in the end - by raising
the costs and risks of employment, businesses have been deterred from raising
employment as much as they could have.
It
takes political courage and skill to effect a transformation of labour policies
and regulations - but we cannot keep deferring this decision.
Sixth,
the new president should build a new consensus around a practical and
hard-headed version of nationalism.
All
countries pursue their own national interests and no serious leader of
Indonesia is going to be anything but a nationalist. But nationalism has to be
pursued in a practical manner. Recent policies in the mineral sector to
accelerate the move up the value chain are to be applauded. These policies are
good for Indonesia’s future and should be broadly supported. However, their
implementation can be fine-tuned so that the disruptive effect on tax revenues
and export volumes can be mitigated.
Seventh,
Indonesia needs to engage with the rest of the world but to do so in a way that
does not cause damage to local workers or businesses.
It is
in the larger interest of Indonesia that it be part of the ASEAN Economic
Community (AEC). The AEC is slated to take full form by the end of 2015,
allowing much freer flow of goods, services, capital and people around the
ASEAN region.
Only by
creating such a large and more integrated market can ASEAN countries, including
Indonesia, collectively and individually be able to compete against the likes
of China and India, whose massive market size even a large ASEAN country like
Indonesia cannot match. From a geopolitical perspective, Indonesia needs a
cohesive ASEAN region as its bulwark against the world market.
However,
the AEC will bring greater competition for local businesses. To facilitate a
proper transition to a full-fledged AEC, the new administration should consider
establishing funds to support efforts by businesses to raise their productivity
and branding power.
Beyond
facilitating Indonesia’s integration with the regional and global economies
through such initiatives as the AEC or the Regional Comprehensive Economic
Partnership (RCEP), Indonesia should also look to strengthen ties with
strategic partners such as Japan. Under Prime Minister Shinzo Abe, a
revitalized Japan is looking to work more closely with its Asian neighbors.
Indonesia has had a long and highly productive relationship with Japan and the
new president should work to secure more Japanese investment in the country as
well as assistance in areas such as education and research and development.
Indonesia’s
business sector is preparing to move up to the next level. It is not looking
for government handouts or molly-coddling. What it needs from the next
president are things it cannot do for itself, things which only a government
can do. So, whether it is tackling the high inflation that drives cost
pressures, or the currency and inflation shocks that come out of the blue every
few years or the woeful state of infrastructure, Indonesian business looks
forward to the next president building on the successes of incumbent President
Susilo Bambang Yudhoyono and taking Indonesia into the next lap.
Rachmat
Gobel
The writer is deputy chairman of the
Indonesian Chamber of Commerce and Industry (Kadin) and president director of
PT Gobel International. The views expressed are his own.
Business & Investment Opportunities
Saigon Business Corporation Pte Ltd (SBC) is incorporated
in Singapore since 1994.
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