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The government's perceived failure to deliver its promises
has created a sharp paradox between the country's sluggish investment
growth and shining macroeconomic indicators, two separate discussion
forums were told Wednesday.
The investment climate remained poor as investors were still waiting
for the approval of three bills that were expected to restore stability
and increase the country's competitiveness, as promised by the
government.
"It's time for the President to put pressure on the House of
Representative to pass the tax, investment and labor bills as soon as
possible," economist Faisal Basri told a discussion forum held as part
of the Indonesian Textile Association (API)'s annual conference in
Jakarta on Wednesday.
The three bills, which were proposed by the government in 2005, have
being undergoing heavy scrutiny and prolonged debate in the House
without any clear timelines for approval.
Other speakers were Trade Minister Mari Elka Pangestu, National Banks
Association (Perbanas) chairman (who is also the president director of
BNI), Sigit Pramono, API chairman Benny Soetrisno and directors general
from the Industrial Ministry, and tax and customs and excise services.
Faisal said that the government was politically strong as the President
and Vice President were backed by the Golkar Party, which held 21
percent of the seats in the House, making it the largest party, and the
Democrat Party with 7 percent of the seats.
"This political backing should be enough to allow the President to push
his agenda forward," Faisal said.
Faisal warned the government not to be overly complacent about the
improvements that had taken place in the country's macroeconomic
fundamentals over the past several months as the improvements in the
economic indicators were largely the result of the country's booming
capital markets, especially government bond sales, which had attracted
massive inflows of foreign funds. However, the real sector remained
sluggish.
"The macroeconomic indicators have improved mostly because there have
been huge influxes of foreign funds into the capital markets, and high
growth in non-labor intensive sectors, such as the telecommunications
industry," he said.
Similar comments had been expressed Tuesday by BI Governor Burhanuddin
Abdullah.
The government, therefore, needed to quickly address the problems
affecting the competitiveness of the real sector, especially
manufacturing industry, Faisal said.
Speaking during the second discussion forum, which was organized by the
University of Indonesia, Indonesian Employers Association (Apindo)
chairman Sofjan Wanandi said that the current macroeconomic
improvements would not last beyond 2008 if the government failed to
deliver on its promises.
"If we want the real sector to grow, then the government has to ensure
faster deliberation of the tax, investment and labor bills," Sofjan
insisted.
He said that given current conditions, many investors, including the
country's banks, preferred to invest in the bond market as extending
loans to the real sector was still seen as being too risky.
Another factor hampering investment in the real sector, Sofjan said,
was that the banks were imposing requirements that were too rigid on
would-be borrowers.
"This is one of the reasons why lending growth is still low although
the interest rate has dropped significantly," he said.
He pointed out that the banking industry had earned a combined net
profit of Rp 7.9 trillion in January, the highest figure for any
January over the last 9 years, despite a decrease of Rp 15.5 trillion
in total lending for that month.
In response, BNI president director Sigit Pramono said that the level
of confidence felt by the banks was still low as people's purchasing
power had yet to recover, and the level of non-performing loans at
major banks remained too high.
According to the latest figures from Bank Indonesia, total NPLs in the
banking sector stood at Rp 48 trillion as of the end of January,
representing about 6.7 percent of total loans. However, the country's
largest bank by assets, Bank Mandiri, has reduced its NPL level from 26
percent to 17 percent, and is targeting a 10 percent NPL level by the
end of 2007.
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