RI MUST BRACE ITSELF FOR GLOBAL ECONOMIC RECESSION

By Andi Abdussalam
    

Jakarta, oct 5 (ANTARA) - As the current global economic turmoil can no longer be responded to with conventional ways, Indonesia must face it by taking concrete and substantial steps such as diversification of export destinations, strengthening the domestic market and reinforcing the agricultural bases in rural areas.
     "The US$700 billion bailout fund for the collapsed financial institutions will not automatically overcome the global economic turbulence. To take an example, one can see a sharp fall in the United States stock market eventhough  US President George W Bush has signed the bailout bill," economic analyst Sutrisno Iwantono said on Sunday.
     Thus, the government needs to take immediate steps to salvage the national economy. Indonesia's exports, particularly agricultural products which depend largely on the United States and Japanese markets, will be hard hit.
     Besides, the global economic turbulence will also affect Indonesia's economic growth.
     State Minister for National Development Planning / Chairman of National Development Planning Board (Bappenas) predicted that the U.S. financial crisis would affect economic growth in Asia, including Indonesia.
     "It will weaken economic growth, particularly in Asia. We have to keep an eye on it because we will be forced to re-direct our exports to other destinations, possibly the Middle East," Paskah said.
     He said that Indonesia had to keep an eye on the crisis particularly its impact on Indonesia's exports to the United States.
     It was expected that Indonesia's exports to the United States would drop in the wake of the financial crisis.
     "We have to be watchful of what is going on there despite the fact that our exports to that country account for only about 30 percent," Paskah said.
      Therefore, according to Iwantono, the government must hear suggestions on the need to diversify export destinations so that dependence on the two countries could be reduced. The government should seek markets in the Middle East, West and Eastern Europe, China and India.
     "China and India are two increasingly important countries but the Middle East and Europe are equally important," Iwantono who is also chairman of the Indonesian Farmers Association (HKTI) and the Farmers Advocacy Center, said.
     He said that the trade minister should soon formulate steps to find market breakthroughs in these potential countries.
     Besides, Indonesia should not also fully depend on the global market because it could  collapse any time. Exports must be balanced with domestic orientation. "Thus, efforts to strengthen the domestic market are crucial," Iwantono said.
     Indonesia is different from Singapore and Taiwan whose size is much smaller and who fully depend on global markets for their exports.
     "With a population of approximately 210 million, Indonesia has highly domestic market potentials. Unluckily, the people's purchasing power is low," he said.
     The breakthrough that should therefore be made is to increase the people's purchasing power, particularly that in rural areas and the agricultural sector.
     The development of agricultural-based rural industries should be given priorities. The steps that could be taken immediately  include that the developing industries which provide the needs of their people, downsizing the volumes of competitive imported goods (against local products such as goods from China) providing product-processing facilities and ample access to credit facilities.
     Besides, the government should provide simplified licensing procedures for small-scale businesses/cooperatives, provide pro-the-poor allocation of development funds and slacken banking liquidity.
     According to Iwantono, several industrial sectors such as food, food processing, fisheries and fish-processed products, animal husbandry products and their processing facilities, timber and its processing as well as plantation products should be given  special attention.
     Iwantono said that investment flow would be very tight this year so that the investment climate must be improved. "Global investment will decline by 10 percent from US$1.8 trillion last year to US$1.6 trillion in 2008," he said.
     He said that as an investment destination country in Asia, Indonesia was a less interesting place than China, India and Vietnam.
     Though it has improved its investment climate, investors still complained about several factors such as the lack of  infrastructure, non-transparent legal process, complicated taxation rules, equity restriction, complicated administrative and bureaucratic procedures, difficulties in obtaining sub-contract businesses, labor disputes and shortage of skilled personnel.
     "The government needs to take comprehensive steps in these aspects," he said.
     In the meantime, Finance Minister Sri Mulyani Indrawati said the government would take  necessary steps to improve various regulations which hampered the development of the industrial sector.
    "We should continue making safeguarding efforts," Sri Mulyani who is also coordinator minister for economic affairs, said.
     The government is keeping a watchful eye on the possible flow into Indonesia of goods failing to enter the United States as it has the potential to disrupt their industry, she said.
     "We have warned the Customs and Excise Authorities of the possibility of goods which are diverted to Indonesia because they failed to enter the United States. We have to anticipate that," Finance Minister Sri Mulyani said here on Sunday.
     The declining demand for imported commodities from the United States as a result of the financial crisis in that country would surely affect the export performance of other countries, including Indonesia.
     Therefore, the government would take anticipatory steps on the possibility of the decline in national productivity as a result of the decline in demands for export goods.
(T.A014/HNG/A/H-YH)  October 5, 2008