Jakarta – The Indonesian Chamber of Commerce and Industry (Kadin) has proposed a set of recommendations for the next government, which is expected to take office in October, to deal with the current economic slowdown.

"The new government must pay attention to several key issues that will hugely affect business players," said Kadin chairman Suryo Bambang Sulisto in a press conference on Monday.

He said the new government should shift fuel subsidy spending to infrastructure development to facilitate the distribution of goods and reduce logistics-related costs.

In Indonesia, a businessperson has to spend around US$2,225 on a 12-meter container delivery with an average lead-time of 5.4 days, while according to World Bank data, in other countries one generally only spends $341 and has an average lead-time of only 2.8 days on a similar delivery.

Suryo said the next government could, for example, use the approximate Rp 300 trillion ($24.6 billion) the current government spent on fuel subsidies to construct railways for transporting logistics without hassle.

"Kadin suggests that the new government build a new railway along southern coast of Java, coupled with the construction of a railway connecting Java and Sumatra islands," Suryo said, adding that the government needed to prepare around $150 billion for such multiyear projects.

The construction of a new railway along the south Java coast would potentially create new cities in the areas, he said.

He also highlighted another problem that business players faced as Bank Indonesia (BI) had raised its key rate by 1.75 basis points to 7.5 percent since June last year to tighten liquidity and maintain the stability of the rupiah.

"With the high interest rate, many business players [particularly those in non-oil and gas sectors] choose to delay their expansion plans," Suryo said, adding that it was estimated that the sector slumped 5.8 percent last year. The high interest rate had also resulted in a higher inflation rate, he added.

The inflation rate increased from only 1.03 percent when the interest rate was less than 6 percent in January last year to more than 8.3 percent – the highest in Southeast Asia – when the interest rate hit 7.5 percent in December last year, Central Statistics Agency (BPS) data shows.

University of Indonesia economist Lana Soelistianingsih said, however, that the current government had made the right move in raising the interest rate, taking into account external pressures.

"I expect that there will be no more interest rate hike during the first quarter of this year, but there will probably be a hike at year-end," she said, adding that the US would experience a higher inflation rate by early next year as its economy started to recover. (koi)

Kadin's recommendations for next government:

• Shift fuel subsidies to infrastructure development
• Develop of more railways and ports to help supply chain
• Improve in marine industry supervision over illegal fishing
• Supervision of the implementation of added-value policy
• Empowerment of the services industry ahead of the ASEAN Economic community (AEC)
• Boost agricultural production to reduce imports and achieve food security