'Cutting paperwork better for exports than incentives'<\/p>\n
JAKARTA (JP): Fundamental policies to streamline trade and
\ninvestment administration are more likely to increase exports
\nthan incentives for some exporters, trade expert William E. James
\nsaid yesterday.<\/p>\n
James, a consultant on trade policy programs at the Ministry
\nof Industry and Trade, said there was usually a negative
\ncorrelation between industry assistance and export performance
\nbecause incentives introduced an anti-export bias in the
\nallocation of a country's resources.<\/p>\n
The Thai experience showed that industries receiving special
\nincentives proved to be better at rent-seeking than increasing
\nexports, he said.<\/p>\n
"Rather than seeking to pick winners for selective incentives
\nsuch as tax holidays, an alternative focus on more fundamental
\npolicy efforts to streamline investment and trade administration
\nand procedures while continuing to deregulate the economy would
\nbe likely to yield better results," James told a seminar
\norganized by ING Barings Securities.<\/p>\n
He criticized the ministry's attempt to pick export winners
\nfor selective incentives as an infeasible strategy to promote
\nfuture growth of non-oil exports.<\/p>\n
In an effort to boost non-oil exports, the government is
\nproviding special tax, customs and banking breaks to exporters of
\ntextiles, textile-related products, shoes, electronics, wood and
\nrattan products and leather goods.<\/p>\n
He suggested the government cut back red tape for investment
\nand international trade rather than provide incentives.<\/p>\n
Although the investment climate had improved, James said, the
\ncountry's investment process remained complicated by the presence
\nof a cumbersome process of investment approvals, licensing,
\npermits, regulations and paperwork.<\/p>\n
Such complicated processes extended the lag between investment
\ndecisions and implementation, he said.<\/p>\n
He observed that an analysis of the relationship between
\nforeign direct investment and the export propensity of
\nmanufacturers revealed that manufacturers with foreign ownership
\nof at least 90 percent were more export-oriented than other firms
\nin the same industries.<\/p>\n
Foreign investors had problems with land leases and
\nlimitations on the duration of investment licenses, which deter
\nthe implementation of investment plans, he said.<\/p>\n
Indonesia still had many restrictions stopping foreign firms
\nentering the domestic distribution system as well as divestiture
\nor excessive performance requirements.<\/p>\n
"Restrictions on foreign ownership or divestiture requirements
\nare probably counterproductive if the aim is to promote export
\norientation in manufacturing industries," James said.<\/p>\n
Growth of the country's non-oil exports has slowed in recent
\nyears while imports have increased rapidly.<\/p>\n
Non-oil exports grew from US$27.1 billion in 1993, to $30.4
\nbillion in 1994 and to $34.9 billion in 1995. Non-oil imports
\nrose from $26.2 billion in 1993, to $29.6 billion in 1994 and to
\n$37.7 billion in 1995.<\/p>\n
James suggested that the government pay special attention to
\nlabor-intensive industries because their contribution to the
\ngrowth of non-oil exports remained the largest.<\/p>\n
In the first half of 1996, labor-intensive industries had the
\nhighest growth contribution of all non-oil manufacturers at 22.9
\npercent, compared with 17.2 percent for human capital-intensive
\nindustries, 12.2 percent for technology-intensive industries and
\na negative figure for natural resource-intensive industries.<\/p>\n
"The analysis of growth contributions shows that labor-
\nintensive manufacturers are still promising and it is wrong to
\nconsider them sunset sectors from the perspective of export
\ndevelopment," James said. (rid)<\/p>\n
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