Economic efficiency<\/p>\n
The reaffirmation by the Governor of Bank Indonesia (central
\nbank), J. Soedradjad Djiwandono, of the urgent need for Indonesia
\nto improve the efficiency of its economy may sound like a cliche,
\nespecially now when most of us are in a festive mood about being
\nable to celebrate the 50th anniversary of our nation's
\nindependence with a very impressive record of economic
\nachievements.<\/p>\n
But the strong warning Soedradjad apparently wanted to make at
\nthe eighth plenary meeting of the Association of Indonesian
\nEconomists is that unless our economy becomes more efficient, our
\ndevelopment may not be sustainable in an increasingly borderless
\nworld.<\/p>\n
The most obvious reflection of our economic inefficiency is
\nthe high incremental capital output ratio (ICOR) or the ratio
\nbetween the amount of capital required to generate a unit of
\noutput. Various surveys show that the ICOR in Indonesia,
\nestimated at four, is the highest among the ASEAN countries.<\/p>\n
The implication is that we need a larger amount of capital
\nstock than most other countries to produce the same volume of
\noutput. That is really worrisome because our investment-savings
\ngap is also among the widest in the region, thereby forcing us to
\nrely largely on foreign capital to finance our economic
\ndevelopment.<\/p>\n
Foreign capital is not much of a problem if it comes in the
\nform of foreign direct investment and portfolio capital because
\nsuch capital flows reflect international confidence in the
\nprospects of our economy.<\/p>\n
What is potentially dangerous is foreign capital which we
\nacquire through loans. We may be proud of the recent vote of
\nconfidence by our creditor group which pledged US$5.36 billion in
\nnew loans. But we must also remember that our country is now the
\nfourth largest debtor among the least developed countries.<\/p>\n
Although we could take consolation in the fact that quite a
\nportion of the loans is in the form of concessional credits with
\nlow interest rates and long maturity periods, the blunt fact is
\nthe debt burdens are quite large, by whatever ratio they may be
\nmeasured. No wonder, as Soedradjad said, Indonesia has come under
\ntougher scrutiny by its creditors. That also goes to show that we
\nare treading a very slippery path in maintaining the internal and
\nexternal balances of our economy.<\/p>\n
The government should be commended for the consistency of its
\nprudent macro-economic management through a high level of fiscal
\ndiscipline and a sound monetary policy which is aimed at
\nmaintaining a comfortable balance of payments position. Sectoral
\npolicies also have been improved through massive deregulation
\npackages.<\/p>\n
But the effectiveness and even the existence of impressive
\nmacro-economic management, along with sound sectoral policies,
\nhas been threatened by ad hoc measures, which often depart from
\nsound economic and sectoral management. Worse still, the
\ndeviations and distortions are most often dictated by short-term
\nobjectives whose worth is questionable.<\/p>\n
It came as a big surprise to learn, for example, that now, 10
\nyears after massive deregulation, many participants at the
\neconomists' conference are continuing to complain loudly about
\nthe arduous licensing procedures. So difficult and, sometimes, so
\ntime-consuming and expensive it is to obtain a business license
\nthat a license seems to have become one of the most valuable
\namong what economic theorists consider the factors of production.<\/p>\n
Since most of the deviations and distortions seem to be
\nderived from the bureaucratic machinery itself, it may not be
\nexaggerating to say that the deregulation packages may remain
\nlargely cosmetic unless the pace of bureaucratic reform is
\naccelerated. That calls for the improvement of the efficiency and
\neffectiveness of the government bureaucratic units in creating a
\nconducive climate for sound economic activities. Only sound,
\nefficient economic activities will be able to spur the growth of
\nour income and only with steady, significant income growth can we
\nincrease our domestic savings and consequently reduce our
\ndependence on foreign borrowings.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/economic-efficiency-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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