2 col 8 pt italic
\n_____________________________________________________________________<\/p>\n
This month sees Indonesia entering its second 25-year
\ndevelopment period. Economist Pande Radja Silalahi analyzes
\nthe challenges presently facing the nation.
\n_____________________________________________________________________<\/p>\n
1 col 8 pt<\/p>\n
JAKARTA (JP): It is a fact that the economic development
\nduring the last 25 years produced meaningful results as well as
\nchallenges and problems.<\/p>\n
Among the most outstanding changes so far are:
\n1. The average per capita income at constant prices increased by
\nmore than four times. However, there is still a disparity in the
\ndistribution of income and about 26 million Indonesian people
\nstill live under poverty line.
\n2. The economy of Indonesia has experienced structural changes
\nfrom the previous agricultural base to an industrial base.
\n3. Economic activities tend to concentrate in cities which
\nresults in urbanization with its related problems.
\n4. Dependence on foreign aid is increasing even though the
\nnational rate of savings is not that small compared to that of
\nseveral other countries.
\n5. Dependence on the income from oil is still significant, even
\nthough Indonesia has tried hard to increase income from non-
\noil\/gas exports, as well as tax revenues, over the past several
\nyears.<\/p>\n
The many constraints encountered at the beginning of the First
\nStage of the Long-Term Economic Development Program were
\naddressed through the applied import substitution strategy. This
\nstrategy has the character of being centralistic and is not
\nconnected in a planned way to the \"export promotion strategy.\"<\/p>\n
The inadequacy of attention to the weaknesses in the strategy
\nand the inadequacy of consistent endeavors to remove them have
\ncreated several problems.<\/p>\n
Among them are the weak linkages between the economic sectors,
\ninadequacy of growth in the number of competent entrepreneurs,
\nconcentration of economic activities among a small number of
\npeople, the weak spirit to achieve and create efficiency and the
\nconcentration of economic activities in certain areas, in
\nparticular the Western part of Indonesia.<\/p>\n
Globalization and the drop in oil prices have thrown light on
\nthe weaknesses attached to the strategy of economic development
\nin Indonesia so that in response over the last few years the
\ngovernment has taken several steps to make the Indonesian economy
\nefficient.<\/p>\n
It cannot be denied that efficiency in the use of capital in
\nIndonesia runs far behind that of several countries. Factors
\nwhich lead to this condition are well known, even if the weight
\nof the factors in the creation of the inefficiency is not
\nprecisely known.<\/p>\n
Experts have said time and time again that if Indonesia can
\nincrease its \"incremental capital output ratio\" to the same level
\nas that in several neighboring countries, then achieving the
\nlevel of economic growth set forth in the Second Stage of Long-
\nTerm Development will be possible without depending on foreign
\naid.<\/p>\n
Indonesia has been successful in reducing its population
\ngrowth. However, in order to create jobs for the new employment
\nseekers it is necessary that there should be a high level of
\neconomic growth. Based on the existing data, it can be said that
\nthe problem of employment will become ever more serious for
\nIndonesia.<\/p>\n
Therefore, matters related to the minimum wage need special
\nattention, especially because there is a great possibility that
\nin this Second Stage of Long-Term Development a \"market failure\"
\nin the labor sector cannot be avoided.<\/p>\n
Keeping economic development centralistic, as has been done up
\nto now, was possibly the most efficient way of dealing with the
\nproblems in the past. However, in the future this policy cannot
\nbe maintained. It is now necessary to decentralize the economic
\ndevelopment in a planned way, consistently and in stages. This
\nwill not be an easy task since this requires a change in the
\nexisting governmental organization.<\/p>\n
Facts show that the great dependence of the Indonesian economy
\non the \"political psychology commodity\" of oil\/gas is one of the
\nmain factors which decreases its elasticity in the face of
\nchanges.<\/p>\n
The efforts of the government to increase exports goes
\ntogether with the endeavor to diversify products and the area of
\nmarketing is the right answer. During the last several years it
\nhas become evident that Indonesian exports can grow at a rapid
\nrate and that the variety of export products is increasing. The
\nquestion is: How much in line with the efforts at creating a
\nstrong linkage between the economic sectors of trade and industry
\nis that export drive?<\/p>\n
The awareness of the importance of human resources as set
\nforth in the current Repelita VI five year plan is something that
\nis very important in the development to come. Experience has
\nshown that the problem resulting due to the non-existence of
\nstrong relations between the institutes which produce manpower
\nwith the users of manpower still exists. Therefore, bridging the
\ngap on an optimal level is imperative.<\/p>\n
The process of globalization, which is moving at ever greater
\nspeeds due to the strength of market forces, has shown clearly
\nthat as competition becomes fiercer, the economies of each
\ncountry in the world must become more transparent. Hostilities in
\nseveral forms will grow against actions contrary to the market
\nlaw.<\/p>\n
Therefore, from now on Indonesia must consistently make
\nefforts to clear away obstacles which can be categorized as being
\nunfriendly to the market forces, such as the practice of
\nmonopoly, unhealthy competition, disguised protection and
\nconcealed discriminative actions.<\/p>\n
In this Second Stage of Long-Term Economic Development it can
\nbe said that the success of Indonesia in creating sustainable
\neconomic development will depends a great deal on its ability to
\nmake the market mechanism operate properly and at the same time
\nto reduce the disparity occurring in the distribution of economic
\nactivities and the value added factor.<\/p>\n
The writer is a senior staff member of the Centre for
\nStrategic and International Studies.<\/p>",
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