Indonesia's economy posted 4.4 percent on-year growth in the first quarter of 2009, according to the Central Statistics Agency (BPS), despite the global economic downturn.
This strong growth appears outstanding compared to the performance of other countries in Southeast Asia. Finance Minister Sri Mulyani Indrawati spent time talking to several media representatives, including The Jakarta Post, about her views on Indonesia's economy and other issues. Here are the excerpts from the interview.
Question: What do you think of the first quarter's growth? And how do you see Indonesia's economy in the remaining three quarters this year?
Answer: As with other countries, the impact of the global economic downturn is seen from variations in exports and imports, as happened in the first quarter. The difference is that exports and imports in the composition of our gross domestic product *GDP* are less than 35 percent, so the decline did not cause *us* a huge drop.
But the biggest contributor, domestic consumption, which is about 60 percent of the GDP, grew so much in the first quarter. The more than 5 percent growth *in domestic consumption* is very strong even compared to the last eight quarters.
We've often said that we're confident household consumption will grow. I'm not talking about top, middle-to-high income consumers in Jakarta. Their purchasing power dropped because they didn't buy *so many* cars *and* motorcycles. There was a downturn there.
But if we talk about middle-income or even lower-income consumers, they were well-protected. So the economy could grow. This is one of they keys *as to* why we've had positive growth.
The question is can this be maintained?
What's relieving *the pressure* is ... If household consumption is not as strong as the first quarter, what is the alternative source of growth? What will compensate *now* is exports, which are not so bad. From the regional side, the global side, even Japan starts to feel more optimistic.
Other countries whose economies *have been* dramatically contracting have shown signs of bottoming out. This creates hope for replacement *of increased household consumption* by improved external demand.
Government spending will likely continue because it is related to procurement or disbursement. I've checked several ministries, *and* they are going well. So the chance of *maintaining* growth above 4 percent this year is very likely.
That defies the predictions of many parties that were pessimistic about Indonesia. Indonesian *performance* becomes outstanding because China may have a 6.5 percent growth, India 5 percent and Indonesia 4.3 percent. So *our performance is* very close *to theirs*. This momentum is very important as it distinguishes us from other countries.
So does it mean that Indonesia should focus more on the domestic side, instead of external side? What about liberalizing the market?
A big economy, particularly backed by a large population, supported by relatively strong purchasing power, can develop an economic structure that is relatively sustainable from the domestic side.
That can happen in China, Japan, Latin America and with the EU.
If we look at this structure, Indonesia is obliged to focus on the domestic side. And *we are getting* the right momentum. For example, we are spending on productive means, like infrastructure .... building infrastructure is never a wasted *effort*.
But the legacy of the government's structure from the past is a problematic bureaucracy, whose instincts are not to serve the public, but their own interests. To break through this mind-set *needs* a revolution from the cultural side.
This needs a continuous, consistent process, so people keep pushing for change. These *resistant* interests need to be tackled one by one.
There is a political debate. Neoliberalism, independency and people's economy, like three pillars. What do you want to say exactly?
A person who understands liberalism or neoliberalism assumes that competition is good for the people. Because you can free the people from the grip of monopoly or vested interests *maintained* in the name of nationalism.
So let them *stakeholders* compete, compete, so the people will get the maximum benefit.
But there are people who are worried, if we open up, that all the domestic players will *be hit*. Then we won't have nationalism. If we talk about people, which people? Producer people, consumer people? Middle-class people, low-class people? Fixed-income people, non-fixed-income people? If we talk about people and nationalism, let's open up again the national interest. Even mighty China combines communism with capitalism.
The US, which has a very free, *economy* failed. They failed to regulate the behavior of their capitalists, so destroying their economy.
So they are going back to the other extreme to regulate a lot more. Either way, all *systems* need clean and effective government.
It is nonsense *to try to* implement liberalism or a people's economy without good government.
Economy is like sport. There will be many people complaining if the competition is not healthy. When there is unhealthy competition, one of the *causal* factors is usually unhealthy government.
A government ruling in its own interest, that can change the rules for the sake of its own interests, will not make either the people's economy or neoliberalism work.
How do you respond to allegations that the government is implementing so-called neo-liberalistic policies?
What is liberalized and what is protected? This needs to be arranged through economic parameters, whether this is extremely liberal or extremely inward looking.
Indonesia is part of ASEAN, there is also AFTA. But people who highlight neo-liberalism never consider ASEAN as their enemy.
What they point to is the US. What will you do if we are liberal? Carrefour is here, Temasek bought Indosat. What are you afraid of, is it their capital or their behavior?
If it's the capital, are you sure you don't want it? If you don't, the economy won't grow. If the competition is not fair, the Business Competition Supervisory Commission (KPPU) will punish them.
There's another concern. Will this threaten domestic industries? I think we should protect domestic businesses. But what kind of protection? A destructive protection? In the 1960s this kind of debate happened in relation to what we called infant industries.
If you talk about government policies, you should always balance between positive and negative sides.
If you give too much, the result will be spoilt industries, which lose competitiveness, people will become the victims of that. They will get worse products and pay more.
President Susilo Bambang Yu-dhoyono said to provide people's credit *KUR*, empowerment programs *PNPM*, school operational support *BOS* and health insurance *Jamkesmas*, they're all protection *measures for* the poor and the vulnerable and would not happen if this country was liberal.
The roles of foreign and domestic players are becoming less clear lately. What is it exactly we want to achieve?
We want the people to develop, be prosperous, get enough income, be able to meet all *their* needs from the day they were born until the day they die: education, food, health, recreations, all in affordable levels.
Those are our focus, so anything that may hurt the people is against us. Any government that is adding its own *selfish* agenda *to this mix* won't have the time to think about the people. People *therefore* have to think about their own interests. That's the logic.
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