The Indonesian Chamber of Commerce and Industry (Kadin), the country's most powerful business lobby, has requested the government to strengthen and consolidate the business sector to help limit the impact of the global financial crisis.

In order to seek insights into the country's business problems and government responses to them, The Jakarta Post's Rendi A. Witular recently talked with Kadin chairman Mohamad Suleman Hidayat. Here are the excerpts from the interview:

What are the immediate measures the government should take to help cushion the impact of the global financial crisis?

The first measure is of course to safeguard our financial and banking sector. I believe this has yet to be completed and efforts to help the real sector have yet to be optimized.

If financial sector safeguards cannot yet be fully applied, then liquidity problems in our banking sector will persist and present a continuing threat.

Liquidity will tend to go to a safer place. This happened in 1998 (in the Asian financial crisis) and we don't want this to happen again.

I have requested the government to issue a full guarantee (for our banking deposits) in order for the banking sector to command higher confidence from the business sector and the public. At present the government can only guarantee a maximum deposit of Rp 2 billion (US$181,000).

Some neighboring countries have introduced 100 percent guarantees on bank deposits. So it is logical that our depositors having more than Rp 2 billion in cash may pull their money out and place it in Singapore, Malaysia and Hongkong which already have the full guarantee policy.

The feared money outflow has not yet taken place, but some people are already thinking in that direction. We do not want a repeat of the 1998 disaster, in which we were late to issue the full guarantee after a massive fund outflow was already taking place.

Bank Indonesia (BI) and the Finance Ministry have already agreed to the full guarantee, and President Susilo Bambang Yudhoyono is currently reviewing the pros and cons of it.

They have also provided several measures to avoid any moral hazard stemming from the policy, and I've also asked businessmen not to abuse the policy for our own sake. I hope the policy could be introduced before Yudhoyono flies to the United States on Nov. 15.

Kadin has also requested the government and BI to control our foreign exchange flows more carefully, where we consider present controls to be extremely loose compared to neighboring countries. The present relaxed regulatory framework has caused unnecessary fluctuations in the rupiah.

For example, investors can put their foreign-denominated money in and then pull it out again in just a second without any restrictions. We want something like a semi-loose foreign exchange flow system. In Thailand investors are requested to pool their foreign-denominated funds for a certain period of time before they can pull them out, while in Malaysia investors are requested to explain the need to pull out their funds.

BI's recent decision requesting people to submit a form explaining the aim of the foreign exchange transfer is just the start to the whole process of bringing in restrictions. We hope BI can issue a comprehensive set of restrictions soon.

What about measures needed for the real sector (corporate, manufacturing and small and medium firms)?

Once the government has settled all of the above problems, then it can fully focus on the real sector. To achieve 6 percent economic growth next year, the business sector needs to operate at full speed. This requires the government to keep the purchasing power of middle and lower-income people intact, at least avoiding a decline.

Local and foreign investment should also flourish to meet the growth target.

Exports should also be maintained because we have estimated that starting in the first quarter of the year labor-intensive industries such as textiles, garments and footwear will be the most affected from the impact of the global recession.

This is because their exports are mainly to the United States and Europe, the epicenter of the crisis.

Businessmen in West Java have already complained of losing orders. They usually sign contracts for orders in October for delivery next year. But no contracts have been signed thus far. They are now starting to get very worried, making projections that they will cut capacity and lay off workers. If we don't come up with immediate measures, this will happen.

The government has urged exporters to diversify their markets, but this is not easy because other countries in Asia with the same problems as us will also take similar measures. The key to compete here is whether they can properly consolidate with their respective governments.

Market diversification will also need a strong banking network. If we go to a new market without backup from our banking sector it will just be useless. So the government should push the banking sector to address this problem.

What efforts are needed to strengthen the domestic market?

This will require people's spending to remain robust and import policies should be adjusted. There must be a disincentive for importation of goods that can be produced domestically, such as textiles, garments and footwear. Local products must fill the domestic market, but the price should not be more expensive than imports.

The government is now looking at each of these sectoral problems to see how to make our products more competitive. What are the components causing products to be expensive. There should also be an incentive to produce for every product considered crucial for the business sector.

So how is the consolidation between the business sector and the government so far? It is still running. There are a lot of decisions that should be immediately taken but remain undecided at government level. During this crisis, there should be a crisis center in which the President is in full control. A decision should be discussed and issued immediately. This has been done by other countries, and we feel that we are very slow in that respect. Measures to address the impact of the crisis should be assessed on a daily basis not monthly. These are not "business as usual" conditions.

For Kadin, the government action so far is faster than before because they have understood that this is a crisis caused by external factors.

How long do you think Indonesia will experience a slowdown due to the global recession?

Based on an optimistic scenario, the slowdown will persist for two years. If based on pessimistic assumptions, it will last for four years. This means our economic growth will not reach 6 percent, and the real sector will be simply turning over and surviving -- with firms at least not cutting jobs or going bankrupt. There will be some investment but in limited sectors.

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