Editorial: Protectionism Won't Save the Economy
This will be a testing week for Indonesia. As the uncertainty over the health of emerging market economies hangs over the region like a dark cloud, policy makers in the country are preparing themselves for challenging times ahead.
Over the weekend, Finance Minister Chatib Basri acknowledged the government had been late in responding to the sharp depreciation of the rupiah and fall in the equity and bond markets.
The country, the minister said, was not in crisis yet but the government was on high alert to deal with future headwinds and economic turmoil.
The rupiah has fallen 12 percent against the US dollar, as international investors withdraw assets from Indonesia and other emerging markets on expectations that the US Federal Reserve will halt purchases of bonds as the economy recovers. Asian currencies like the Philippine peso and Malaysian ringgit are at three-year lows against the dollar.
More worryingly, yields on the government 10-year note this year have soared to almost 8.5 percent from 5.2 percent at the start of the year. "Are we late? Yes, we are a bit late, but not too late," Chatib said. "The point is, let's not debate about lateness, but focus on the delivery [of policy]. If the delivery is slow then we will be too late."
We agree wholeheartedly with the minister. It is no use crying over spilled milk, what is now critical and urgent is that the government and the private sector work closely to ensure Indonesia's economic growth momentum is not derailed. The country cannot afford to put up protectionist barriers or introduce policies that hurt businesses.
The policy package announced last week will take time to digest and affect the economy. As noted by Chatib, Indonesia's economic fundamentals remain sound but the government's reform agenda must move with greater haste, unfavorable policies must be eliminated, corporate taxes lowered and bureaucratic red tape unwound.
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