From The Jakarta Post

RI still has work to do, economists says

Urip Hudiono, The Jakarta Post, Jakarta

The country's often gloomy business and economic front received a much-welcome boost this week, with several positive reviews from international agencies.

Global credit rating agency Moody's Investors Service announced it may raise Indonesia's debt ratings on continuing sound fiscal management, while global money-laundering watchdog Financial Action Task Force (FATF) said it was no longer imposing tight monitoring on the country.

While the reviews may help lift the local financial markets, analysts are warning the government against prematurely patting itself on the back, with a way to go on the road to economic recovery.

"The reviews are, of course, good news for the economy, but we have to remember that they focus more on the macroeconomic side, so their impact is mostly limited to the interests of the country's haves and foreign investors," said Bank Mandiri chief economist Martin Panggabean.

"What is more important now is how the government can translate this into the microeconomy, into the real sector, with more significant impact on the general public."

While acknowledging the positive sentiment the reviews would bring to portfolio investment in the stock, bond and forex markets, Martin urged the government to up efforts to stimulate the labor-intensive manufacturing sector, such as the auto and cement industries. Both have suffered a slump in sales due to last year's economic slowdown amid high inflation and interest rates.

Moody's said Monday it was considering upgrading Indonesia's B2 debt rating on the government's ongoing achievement in maintaining the state budget deficit under 1 percent of GDP. This comes after Standard and Poor's raised its outlook on Indonesia's B+ rating early in February.

Higher ratings and positive outlooks lower issuer's borrowing costs -- good news for the government's plan to offer some US$1 billion worth of global bonds sometime next month. Finance Minister Sri Mulyani Indrawati and Bank Indonesia Deputy Governor Hartadi A. Sarwono are currently on a roadshow to major world financial centers.

The FATF, meanwhile, announced last Wednesday that Indonesia, after being removed from its list of noncooperative countries last year, was no longer under its monitoring because of improved legal policies in tackling money laundering practices.

Before issuing the money laundering law, Indonesia's country risk status saddled local firms with higher premium and stricter procedures with their international counterparts on financial transactions.

Echoing Martin's view, Bank International Indonesia chief economist Ferry Latuhihin said the positive impact of the reviews would likely be limited to mere indications the economy was improving.

"But that still relies more on the government's own efforts, not just from good reviews or better ratings," he said. "The government must improve the tax system and (curb) bureaucratic red-tape to attract long-term foreign direct and portfolio investments."
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