Tuesday, January 31, 2006

Honeymoon is over for Boediono

It's almost two months as the coordinating minister for the economy, Dr Boediono has been warmly responded with a stronger rupiah against the greenback, higher stock market index, a lower inflation rate, and new hopes of economic stability and progress.
But being in the post is not just dealing with monetary and fiscal policies, things that earned him so much respects. Boediono, a conservative economist, is confronting some non-monetary and fiscal issues that needs tough decisions and highly sensitive politically.
Huge unemployment due to relatively limited new investment and high-cost economy is the most critical of all especially when so many industries announced mass lay-offs for various reasons, including the planned electricity tariff hike.
From the fiscal perspective, Boediono might choose to raise the tariff as it would ease the burden on subsidies given to state-owned monopolist PT Perusahaan Listrik Negara (PLN). But rasing tariff this time around would risk higher unemployment as most industries and consumers have not absorbed completely the step fuel price hike in October 2005.
State-owned telecommunication company PT Telkom has submitted a plan to raise the telephone tariff up to 30%. (FYI, Telkom booked almost US$1 billion profit last year)
Budget pressure might be higher this year as the country should resume payments of its sovereign loan after one year of break following the Paris Club decision to give the room for Indonesia to cope with the major burden aftermath of the tsunami.
And, while the significant decrease in fuel consumption managed to loosen pressure on budget from high oil price in the last two months, people starts to worry the global oil supply might push the price to the sky amid political development in Nigeria, Iran, and Palestine.
But it's just unfair to raise electricity and telephone tariffs just months after the fuel price hike for the sake of budget balance.
Despite the macroeconomy stability in the last few months, net inflow of capital for fresh investment is still bare minimum. Why? Investors are waiting Boediono's firm decision on several pending issues confronted by major players that normally seen as benchmark.
Indonesia Mining Association (IMA) recently warned government to improve the investment climate in the sector with providing business and legal certainties under the system of contract of work.
PricewaterhouseCoopers cited in its recently published report that even though there has been a significant increase in global exploration spending, exploration spending in Indonesian mining industry remains at low levels, accounted for less than 1.5% of the global spending of US$3.8 billion in 2004.
The recent downtrend in exploration activity can be attributed to the country's lack of legal certainty, security concerns in some remote parts with good mining prospects, and rampant illegal mining.
Few weeks ago I met an executive of Merril Lynch. He believes Boediono could improve the macroeconomy stability. But that's not enough. "We have concerns on some issues like ExxonMobil's project in Cepu. The settlement on Cepu would be a benchmark whether investors want to invest more or pull out and invest in other countries," he said.
The giant oilfield project that needs US$2 billion is yet to start pending the endless dispute between Exxon and Pertamina over who should be the operator of the block.
Little progress has been made in infrastructure projects despite major campaign to lure in foreign investment. Most of toll road projects went to some powerful local business groups. China investors had committed to build some huge powerplants with limited progress.
Textile industry is in a critical situation due to stiff competition with other countries in export market while more and more cheap import garments enter the local market.
An evaluation by the ministry of industry found that half of the machinery at textile companies was more than 15 years old, causing inefficiency and lowering the price competitiveness. A major revitalization program is badly needed and awaits immediate help from government to make use the already committed cheap Japanese loans.
Timber-based industry would continue its downward trend. Last year, 64 furniture firms were closed down due to increasing costs and lack of timber following the government's decision to lower the logging quota for natural forests and the failure in timber plantation program. As export will unlikely to grow, domestic market has been increasingly flooded by imported furnitures. Last year, total furniture imports jumped 78%.
Meanwhile plywood producers in South Kalimantan predicted mass layoffs on 11,800 workers by first semester 2006 due to various problems.
The synthetic fiber manufacturers had announced late last year their plan to layoff 9,000 workers until this year. Some 2,000 workers had been out of the job last year due to fuel price hike, the industry association said.
Bomer Pasaribu, former minister for manpower, predicted up to 1 million workers would join the already 12 million people categorized as open unemployment. That would be a nightmare.
According to Central Bank's statistic, in third quarter 2005, net inflow of foreign direct investment (FDI) was only US$53 million, dropped from US$2.17 billion in second quarter. The numbers were well below the data announced by Investment Coordinating Board (BKPM) that FDI jumped 190% to US$8.9 billion last year. Central Bank's data is more reliable as it recorded the true inflow of capital. BKPM's data should have make more jobs than layoffs.
So, Dr Boediono, it's nice to have you back on board to stabilize the macroeconomy, but that's just not enough. People needs job. We need to invite more investors to create jobs.

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Anonymous Anonymous said...

Good analysis, it’s impossible for Budiono to recover the economy, and creat the job!
He is the man behind Megawati’s loosing her popularity.
Megawati had promise to support “wong cilik” (the poor), but at the end, the economic policy to support “wong licik” (deceiver). Un-employment increase as well as corruption over selling ‘state own enterprises’. Its Budiono’s responsible! as ministry of economic.

Now SBY repeat the same path as Megawati. He promised to decrease un-employment but the result is increasing. He promised to revitalized agribusiness, then he import rice from Vietnam while he release fertilizer subsidy.

I bet his fate will repeat Megawati, his supporter will leave him!. Goodbye economic recovery!

February 01, 2006 8:27 PM  
Anonymous Anonymous said...

It's not easy being someone like Boediono. Give that man a chance

July 14, 2006 12:27 PM  

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