29 April 2010

» Home » The Jakarta Post » Anti-crisis, growth consensus

Anti-crisis, growth consensus

At the international seminar in Tashkent, Uzbekistan, on April 12 that was attended by participants from around the world including representatives from multilateral agencies such as IMF, World Bank, ADB, and UNDP, there was a consensus on how to deal with the global crisis and sustain high economic growth.
The success of emerging countries such as China, India, and Uzbekistan, and to some extent Indonesia, in dealing with the global crisis while maintaining high economic growth has provided important lessons.
It is important for the country to have a clear anti-crisis program that covers financial stability, stimulus to the economy, creating employment and supporting the poor.
A financial stability program includes strengthening capital adequacy for the banks, restructuring non-performing loans, strengthening risk management, and setting protocol to deal with systemic risk.
Programs on stimulating the economy include lowering tax rate, incentive for the private sector, infrastructure development and developing the domestic market. On employment creation the focus is on supporting SMEs.
On assisting low-income people, it is important for low-income people to receive better access to jobs, healthcare and education.

The global crisis has ruined the financial market in developed economies, especially in the US and UK, and created a global economic crisis with a deep recession in developed economies.
However, emerging economies led by China can maintain a high economic growth at 8.7 percent, India at 6 percent, Uzbekistan at 8.1 percent and even Indonesia can maintain positive growth at 4.5 percent.
In these countries CAR (capital adequacy ratio) at the banking sector is high in double digit figures above the requirement of Basel.
Meanwhile, the financial authority is aggressively pusheing for non-performing loan restructuring and limiting the involvement of financial institutions, especially banks from exotic structured products.
In addition, foreign debt is limiting so that it will not create a burden that can ruin the economy at the time of crisis.
The emerging countries that experienced high economic growth stimulated the economy by cutting tax rates and giving other tax incentives for business, higher budget allocation for infrastructure development, and facilitating for industries to deal with the impact of declining exports because of recession in export markets in developed economies.
A special program to support SMEs  that is very important for employment creation has also been implemented. Support for low-income people related to health, education and program-like cash transfers is very important for people living in poverty to cope up with the situation.
Nevertheless, budget discipline remains intact, even for the case of Uzbekistan the budget was still surplus.
At the stage of global economic recovery, countries with a reliable anti-crisis program will also be able to reap the benefits of recovery in export and investment. As there is uncertainty lingering around sustainability for developed economies to recover,  regional cooperation is very important.
In Asia, as an example, the ASEAN-China Free Trade Agreement is very important to boost trade and also investment in the region. A similar effort should be undertaken in other regions.
Furthermore, there is understanding that the role of China in the world economy will be stronger. The role of China in trade and investment should also benefit emerging economies.
The use of yuan for bilateral trade is getting wider support. It is clear there is a shift of economic growth to Asia led by China.
This phenomenon should be seen as a positive signal for continuing economic progress of the world economy.
Nevertheless the issue of imbalances especially between China and the US should be resolved through bilateral means as well as the G20 forum.
For Indonesia, the momentum for high economic growth is very much on the move. The inflow of capital is very strong that significantly increases the capital market index and strengthening rupiah.
The capital inflow is also very strong to buy sovereign bonds and be placed into a Bank Indonesia certificate (SBI).
Unfortunately, there is no strong sign yet for foreign direct investment (FDI). The classical issues of conflicting regulations, poor infrastructure and labor regulation rigidity are still the main concern for foreign direct investors.
Once these classical issues are solved in a step-by-step manner, the FDI will flock to Indonesia to support sustainable high economic growth.

Umar Juoro, The writer is senior fellow at the Center for Information and Development Studies (CIDES) and the Habibie Center.
Opini The Jakarta Post 30 A pril 2010