Washington – Indonesia must give immediate priority to completing tax, labour and other key reforms aimed at drawing investments crucial to boosting economic growth, a senior IMF official said.
Daniel Citrin, deputy director of the Washington-based International Monetary Fund's Asia and Pacific Department, said that with consistent policy implemention, Indonesian economic growth prospects were "good and things will pick up quite rapidly.
"There are still issues that affect the investment climate and that's the main priority," Citrin told AFP on Thursday after addressing the US-Indonesia Society in Washington.
Asked what were the near term priorities for Southeast Asia's biggest economy, he said "completing" the tax reform agenda and new investment laws, already in the final stages of preparation.
"It has to continue to make strides in simplying the tax system and making it a fair system and dealing with corruption and having good labour laws and have a right balance between protecting labour but at the same time not making it impossible for businesses to operate there," he said.
Citrin, who has been working on Indonesia since 2001, said the government required a "good structure of spending so that they can concentrate on improving infrastructure, supporting education and social welfare amid consistent application of policies."
Rampant corruption in Indonesia – one of the world's worst-rated in terms of graft – has been cited as a main deterrent of much-needed investment in Southeast Asia's largest economy.
Despite graft and other concerns, foreign investment in Indonesia nearly doubled in 2005 to 8.91 billion dollars while approvals jumped by almost one third amid improved political stability, the government said recently.
Citrin said another priority for President Susilo Bambang Yudhoyono's administration was breaking a four-year deadlock between state oil company Pertamina and Exxon Mobil on who operates Indonesia's biggest untapped oil reserves in Cepu.
The oil field, which could add about 18 percent to Indonesia's production, is OPEC-member Indonesia's best hope for stemming declining output.
"I think they need to solve the problem with Exxon Mobil quickly... this has been dragging on for a long time," Citrin said. "Some of the needed policy changes will require some strong political will and you need to bring along all the parties together, it's not always easy, it needs strong leadership by the government and the president," he said.
On economic growth prospects, Citrin said there were "quite positive" and noted that in the short term, there would be some softening in expansion but "this is unavoidable result of some policy changes.
The Indonesian economy expanded 5.6 percent in 2005, under the official government forecast as fuel price hikes ate into the economy. In 2004, growth was at 5.05 percent.