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Indonesian twin challenges – investment and jobs

Updated On: Aug 22, 2006

In last week’s State-of-the Nation address, Indonesian President Susilo Bambang Yudhoyono focused on how to improve the economy and eradicate poverty while not slowing down on the anti-corruption campaign.

He said that the economy was expected grow at a rate of 6.3% in 2007, up from the 5.9% estimated this year. In addition, the budget deficit would drop to 0.9% of the GDP next year, compared to the 1.2% in 2006. The government intends to achieve this from increased investment flows and tax revenues. Yudhoyono added that legislators needed to assist the government in laying down policies that would “create an investment-friendly environment” such that jobs could be created and unemployment eased, the Straits Times reported.

The Straits Times also noted that Yudhoyono also set out anti-poverty measures including cash subsidies to 19 million poor families to offset the rising fuel prices, cheaper medicines for the poor and help for 40 million children in the payment of school fees. Wages would also be raised by 23.2% in the civil service to curb the temptation of graft.

The overall reaction to this announcement has been muted. Economists have generally criticised Yudhoyono’s actions while Endy Bayuni, chief editor of the Jakarta Post, has outlined the stark truth behind the national address. He said that Yudhoyono was masking the real facts that “over 40 million people in Indonesia are out of work” and that the reduction in unemployment from 11.2% in 2005 to 10.4% this year was a deceptive ploy “dating back to the Soeharto years” to deflect public scrutiny of the dire state of joblessness. He criticised that instead of going to the root of the problem and creating jobs, the government pays immense subsidies from the nation’s coffers as handouts, thereby overburdening the present workforce. Bayuni felt that despite the many problems Indonesia faces, Yudhoyuno should have capitalised “on the high level of goodwill and patriotic sentiment prevailing among people celebrating Independence Day” to mobilise the crucial public support needed for successful implementation of policies.

Economist Umar Juoro of the Jakarta-based Centre for Information and Development Studies was quoted in the Straits Times that the aspired economic growth needed a substantial boost in investments. Hadi Soesastro, head of the think tank, the Center for Strategic and International Studies (CSIS), seconded that the investment climate needed overhauling, telling the Jakarta Post that “Indonesia has the potential to achieve the economic targets but there has to be strong economic leadership on the government's part… Fiscal stimuli and lower interest rates are not enough to boost the economy if nothing is done to improve investment”. He added that by failing to “stand up to the labour movement [meant that the chance] to improve the investment climate by amending the labour legislation had been lost”.

Despite the wariness against the government forecast, other economists say that it is a “realistic and achievable” plan given the “current state of Indonesia’s economy”. This includes Faisal Basri and Chatib Basri. The latter told the Jakarta Post, “Judging from declining inflation, which it is estimated will come in at 8 percent by the end of the year, I think the 6.5 percent target is not overestimating it.”

Whether economists agreed with the thrust of Yudhoyono’s speech or not, most economists interviewed in the press stressed the need for real investment flows, determined government economic policies and weaning the people off cash subsidies to self-support by job creation were what the government needed to do.

Sources:

Economists cautiously welcome budget targets (Jakarta Post, 19 August 2006)

The real state of the nation is 40 million jobless! (Jakarta Post, 19 August 2006)

Yudhoyono's twin targets (Straits Times, 17 August 2006)