The United States challenged newly elected Indonesian President Susilo Bambang Yudhoyono to swifty implement judicial reforms and roll back fuel subsidies to regain confidence of foreign investors and spur growth.
As Yudhoyono swore in his cabinet, the State Department said judicial reform, scrapping fuel subsidies and revamping the taxation system and state banking sector were key to restoring investor confidence and boosting economic growth.
"The criticism of the outgoing government was that there was no concrete action behind the rhetoric and this government has to show that things have changed and they are going to take concrete action," said department director Shari Villarosa.
Speaking at a conference on "Indonesia's future economic growth: agenda for the new government," Villarose said judicial reforms might take 20 years to complete "but the government has to start moving to show the world that they recognize there is a problem and they are going to make neccesary efforts."
The judicial system is among the main reasons for Indonesia remaining among the world's most corrupt countries, conference participants said. Yudhoyono, who scored a landslide victory against incumbent Megawati Sukarnoputri last month in Indonesia's first direct presidential polls, has vowed to root out graft. He has appointed a reformist judge, Abdul Rahman Saleh, as attorney-general.
Villarosa, a former US charge d'affairs in East Timor, said reattracting investors was key to boosting growth and containing unemployment.
Indonesia's current investment level remains at about two-thirds of what it was before the 1997-1998 financial crisis, which plunged the country and its neighbors into recession, she said.
"They are going to need to attract an increase of investment on the order of four percent of GDP just to raise growth by one percent," she said. "But [as growth needed to be raised by two percent] they need to raise investments to eight percent of GDP." Villarosa said Indonesia's current growth of four to five percent was not sufficient to absorb the two to 2.5 million job-seekers entering the workforce every year.
On fuel subsidies, which jumped to 6.9 billion dollars this year, she said even rolling back a third of them would free up more than two billion dollars in additional revenue.
Indonesia's reappointed Energy Minister Purnomo Yusgiantoro said he did not intend major policy changes on the costly oil subsidies, a tricky issue in the Southeast Asian country which, despite being an OPEC member, is now a net importer of fuel. Cuts to subsidies led to civil unrest in 1998, contributing to the fall of dictator Suharto.
Iwan Aziz, an Indonesian professor of economics at Cornell University, said among the key problems facing Yudhoyono was unemployment and debt servicing.
"It is amazing that with disguised unemployment at 30 percent [three times the official figure of 10 percent], there is no social unrest in Indonesia," he said, adding that many of those without jobs were young professionals reluctant to take up employment in the "informal sector."
He said a substantial chunk of Indonesia's expenditure was channeled to repayment of debt that had saddled the country since the financial crisis seven years ago. The government had 82 billion dollars of outstanding debt at the end of March.
Aziz said there was some disappointment in the cabinet lineup named by Yudhonoyo, indicating the new leader could be indecisive. "This worries me although we need to give him more time." For example, the president's appointment as chief economics minister of a tycoon whose company defaulted on millions of dollars in foreign debt disappointed analysts hoping for clean faces in the line-up.