Fri, 12 Jan 2007
From: The Jakarta Post
By Ika Krismantari, The Jakarta Post, Jakarta
The government needs to formulate and implement policies that promote the speedy growth of the real sector, and labor-intensive industries in particular, to help tackle Indonesia's "economic paradox", a discussion forum concluded Wednesday.

The forum, initiated by the Jakarta-based think thank, The Habibie Center (THC), used the term "economic paradox" to refer to the fact that, despite the country's macroeconomic stability, the real sector had yet to get into top gear, as a result of which poverty and unemployment remained all pervasive.

Therefore, THC urged the government to focus on policies such as the overhauling of the investment, tax and labor legislation so as to stimulate the private sector and investment in labor-intensive industries -- primarily manufacturing and agriculture -- in order to foster strong and sustainable economic growth, thus helping tackle the poverty problem.

The World Bank says that 110 million people, or nearly half of the population in Indonesia, are living in poverty -- defined by a per capita expenditure of US$2 per day, while the number of unemployed and underemployed people is estimated at more than 40 million.

"The poverty problem will continue to exist as the government is only concentrating on monetary policies while neglecting the other sectors that have the potential to provide jobs for the unemployed, such as agriculture and manufacturing," said Umar Juoro, a senior THC researcher.

He admitted that the government had done a fairly good job in restoring macroeconomics stability, as could be seen from the continued decline in inflation and interest rates, which both currently stand at single-digit levels.

However, the government needed to act to quickly improve the investment and business climate, which would in turn attract fresh money to the real sector. Only robust investment flows, he added, could accelerate economic activity and create jobs.

"Boosting investment means that the government should act to ensure more flexible labor legislation, provide investors with incentives, such as tax holidays, eliminate lengthy and costly bureaucratic processes, and improve coordination between the central government and local administrations," Umar explained.

"If amended labor legislation cannot be enacted due to the opposition of the labor unions, why not do the job through a government regulation?"

Without drastic measures to increase investment, the THC predicts that Indonesia's economy will grow this year by not more than 6 percent, while full-year inflation will remain flat at between 6 and 7 percent.

THC also predicts that bank lending will increase by around 20 percent from 13 percent last year.

The government has set an economic growth target of 6.3 percent for this year.

Andrinov A. Chaniago, another senior THC researcher, urged the government to pay more attention to local government ordinances, many of which were detrimental to investment.

He also reiterated the need for the central government to require local administrations to establish sound and accountable systems for the management of their development funds following Bank Indonesia's recent revelation that the country's regions had parked funds totaling more than Rp 43 trillion in central bank treasury bills (SBI).



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