"We need
help. I am not ashamed to say this. We need to go to
donor countries, and I doubt anyone will say no," Irzan
Tandjung, head of a new economic council set up to help
Indonesia's president-in-waiting Susilo Bambang
Yudhoyono attract investment to set the economy back on
track, told a meeting of diplomats in Jakarta on
Thursday.
The move by Tandjung, 67, who also is
chairman of Yudhoyono's small Democratic Party and a
retired professor of economics, was seen as a signal to
the market that the new government is determined to take
on the country's problems. If the successful election
process is now followed by an orderly transition of
government, Indonesia's image overseas will be boosted
after serious concerns about terrorism, corruption and
separatist conflicts saw foreign direct investment fall
by one-third to US$3.3 billion in the first seven months
of this year compared to the last.
Though
Yudhoyono has an unassailable lead in the vote count,
incumbent Megawati Sukarnoputri has not conceded defeat
so far. The General Elections Commission (KPU) has
started verifying the results and will announce the
winner on Wednesday. The 55-year-old retired general is
due to name his cabinet on October 20 - the day he and
his vice-president, Jusuf Kalla, are inaugurated - and
will hold his first cabinet meeting a day later.
He is widely expected to name a cabinet
"weighted towards professionalism", and to avoid
appointees "who only think politics," senior aide
Rachmat Witoelar was recently quoted as saying.
Yudhoyono has told the Indonesian Chamber of Commerce
and Industry (Kadin) that he plans a "troika" of
government, business and the community, which would sit
together at least every three months to discuss policy
directions.
Stepping up efforts to boost
investment to spur economic growth in Asia's
slowest-growing developing country is high on the
agenda, and Yudhoyono has indicated that his first
priority will be to create jobs. Tandjung conceded that
this would be a tough challenge for the new leader: "It
relates to the economy, politics, legal framework and
taxation."
Though the $208 billion economy is
Southeast Asia's largest, Tandjung pointed out that the
new government has no money to fund programs. "The
biggest problem is money," he said, speaking only a
month before the Consultative Group for Indonesia (CGI)
meets to agree on how much to loan Indonesia for 2005.
The CGI pledged $2.84 billion for this year, the first
since Indonesia's exit from the International Monetary
Fund (IMF) program.
Though the Asian Development
Bank says Indonesia needs $150 billion of investment
over the next decade to raise growth to an average 6.5%
a year, the IMF forecasts the economy will still grow as
much as 5.5% next year, in line with the government's
forecast of 5.4% growth. The IMF also is concerned about
the jobless. "Indonesia has great potential. There is
frustration that growth has not picked up to the
potential level," Stephen Schwartz, the fund's Indonesia
representative, said in a recent interview in Jakarta.
"The growth rates we have seen, while respectable, are
not enough to absorb unemployment."
Given the
volatility of the country's politics, ratings agency
Standard & Poor's (S&P) last month said the
development of a workable relationship between the
executive and the parliament would be "the key to
success". The Nationhood Coalition, comprising Golkar,
the Indonesian Democratic Party of Struggle (PDI-P) and
the United Development Party (PPP), on paper accounts
for around 60% of the 550 seats in the House of
Representatives (DPR) and has promised parliamentary
opposition. Backed by the coalition, Golkar deputy
chairman Agung Laksono was elected speaker of the House
of Representatives on Saturday.
Ultimately,
recovery will depend not only on new investment but also
on higher productivity. Neither is encouraged by many of
the articles of the new labor law implemented by
Megawati. John A Prasetio, deputy chairman of Kadin,
claims some 40% of foreign investors had a negative
perception of the current labor regulations, compared to
7% in Malaysia.
Though the new law set a more
democratic industrial relations framework than in the
past, it discouraged businesses by making it very hard
to sack employees. The law also has failed to stem
unemployment, which is growing by 2%, or between 2
million and 3 million annually. Many of those out of
work are high school and university graduates. However,
in April Jacob Nuwa Wea, minister of manpower and
transmigration, dismissed the unemployment data and
projections from the National Development Planning Board
(Bappenas) and the Central Bureau of Statistics (BPS).
These were not only inaccurate and misleading, he said,
but had discredited the government and could heighten
public unrest. The two agencies are not directly
accountable to the government.
Bappenas had
predicted that the number of the fully unemployed would
increase to 11.2 million in 2005 from 10.8 million in
2004 and 9.1 million in 2003, while the number of the
disguised unemployed - those who work less than 35 hours
a week - would soar to almost 49 million in 2005 from 42
million in 2004 and 38.5 million in 2003. The BPS
predicted the workforce would increase to 95.5 million
in 2005 from the current 91 million. Some 44%, or 42
million of the workforce, it says, is employed by the
agricultural sector, 13% by manufacturing and the
remaining 42% accounted for by other sectors and the
unemployed.
But Wea said the data collected by
his ministry showed the number of jobless this year
stood at only 9.6 million, with the figure up to January
2003 at 9.1 million and the remaining 500,000 coming
from the 2.5 million new job seekers in 2003 who could
not find work. The minister conceded, though, that the
government had failed to attract many foreign investors
to Indonesia, saying this was due to security
disturbances, the absence of legal certainty and rampant
illegal fees in the region.
In any event, the
incoming president plans to repeal the decree, Tandjung
told the diplomats, and he also will review tax laws
that discourage investment. The Japan External Trade
Organization (Jetro) has listed Indonesia among the most
unattractive countries for investment, with 72% of its
business respondents complaining about the country's tax
regime.
Megawati's administration backed off
from reducing fuel subsidies in this election year, thus
leaving the new government with the unpleasant work.
"Because it wasn't done gradually, we now face a
problem," Tandjung said. "We have to do it gradually to
prevent a shock to the system. For kerosene, it's okay
but there's no reason to subsidize some fuels."
Predicted levels of fuel subsidies will cost
more than twice the forecast budget deficit of Rp26.3
trillion ($2.9 billion). The projected fuel subsidy has
soared to Rp59.2 trillion since oil prices hit record
highs, more than four times the Rp14.5 trillion
projected at the beginning of the year. If the subsidies
are lifted, production costs and other costs of doing
business will, of course, increase and a set of tax
breaks will be needed to compensate for the subsidy
reductions. Compensation schemes for the poor are also
expected, to cushion the costs of adjustment.
The poor, almost half the population according
to the World Bank, use paraffin (minyak tanah)
for cooking, and heavy subsidies for this basic
essential will remain in place. Reliable law enforcement
and legal certainty are also major obstacles to
investment recovery in the $208 billion economy, which
the outgoing government expects to grow 4.8% this year -
the fastest pace in four years, after a 4.5% expansion
last year.
The IMF has been pressing for
sell-offs of nationalized banks, spending controls, and
the containment of inflation, which stood at 6.7% in
August. Sales of banks and other state assets will help
narrow the fiscal deficit to 1.3% of gross domestic
product this year, or Rp26.3 trillion, and to 0.8% next
year, balancing the budget by 2007, according to the
outgoing government's predictions.
The IMF has
said a great deal has been achieved in strengthening the
financial system, but one of the challenges for the new
government would be to continue the process of turning
the banks over into private hands.
Bill
Guerin has worked for 19 years in Indonesia as a
journalist and editor. He specializes in
business/economy issues and political analysis related
to Indonesia. He has been a Jakarta correspondent for
Asia Times Online since 2000 and has also been published
by the BBC on East Timor. He can be reached at
softsell@prima.net.id.
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