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Indonesian President Sets Economic Priorities for Second Term

During his first term in office, Indonesian President Susilo Bambang Yudhoyono oversaw a period of robust economic growth based on exports. This year exports have slowed as a result of the global recession. As the president gets set to begin his second term, one of his chief economic advisers says the government must now focus on improving the investment climate to develop domestic industries.

As a result of the global economic slowdown, Indonesia's rate of economic growth went from 12 percent last year to 4.3 percent.

Finance Minister Sri Mulyani Indrawati says the export market that fueled economic growth during President Yudhoyono's first term in office may not recover for some time. She says in his second term the president and his economic team will focus on improving domestic industries.

"I guess President SBY and Vice President-elect Bodieno are going to use the theme of improvement of the investment climate still as the main topic for their agenda in the next five years," she said.

Indonesia possesses the large labor pool and the abundant natural resources required to develop a manufacturing base that can compete with Brazil, Russia, India and China. But in part because of an uncertain regulatory environment and poor infrastructure, the country has been unable to attract the investment needed to develop industry.

Mulyani told journalists on Wednesday that the government will first require state-owned enterprises in key agricultural industries such as sugar and fertilizer to modernize and maximize production.

"There is no motivation to use their division or the money, the surplus from their revenue, to reinvest it in this industry," said Mulyani. "The president has already outlined an order and I think it will be started in the first year of his next term, 2010, to start revitalizing by these industries."

To the make the economy more competitive, she says, the government is looking at ways to reduce costly fuel subsidies.

And Mulyani says the government is going to get tough with speculators, who stifle infrastructure improvements such as roads and bridges, by inflating the price of the land needed for these projects.

"The government can make sure that any speculant [speculator] that increases the price, who increases the price extraordinarily, they are also going to pay the tax," she added. "So that is going to be neutralizing from the fiscal position."

Ultimately, she says over time the government must divest itself of more state-owned businesses to allow the private sector to grow.