Reduce transaction costs to boost exports: Experts<\/p>\n
JAKARTA (JP): Economists said yesterday that trade transaction
\ncosts must be reduced if the country is to improve the
\ncompetitiveness of its exports.<\/p>\n
\"Problems like transaction costs are escaping our attention
\nand are already hurting our economy, especially exports,\" Fuad
\nBawazier, the Jakarta chapter chairman of the Indonesian
\nEconomists Association, told journalists after attending a
\nlecture at the University of Indonesia.<\/p>\n
He said the government is driven to boost the country's
\nexports of goods but has ignored increasing transaction costs in
\nthe form of insurance fees, freight costs, financial charges,
\ninformation and search costs, standards as well as property
\nrights.<\/p>\n
Fuad, who is also tax director general, noted that while
\nIndonesia has enjoyed a trade surplus for many years, it
\ncontinuously suffers deficits in current accounts, which include
\ntrades in both goods and services.<\/p>\n
In the last 1995\/1996 fiscal year, for example, Indonesia
\nenjoyed a trade surplus of some US$5 billion but suffered a
\ncurrent account deficit of $7 billion.<\/p>\n
The government predicts that the current account deficit for
\nthe current (1996\/1997) fiscal year will widen to $8.7 billion.<\/p>\n
\"This means that we bear all the transaction costs, which, on
\nthe other hand, are enjoyed by our trading partners,\" Fuad said,
\nadding that transaction costs account for between 15 percent and
\n20 percent of Indonesia's total international trade.<\/p>\n
Fuad explained that Indonesia's exported goods are usually
\nsold in importing countries for prices that are four to ten times
\nhigher than their production costs.<\/p>\n
\"That makes our export products less and less competitive in
\nthe world market,\" Fuad said after attending a lecture on
\ninternational transaction costs by John Adams from the economics
\ndepartment of Northeastern University in Boston, Massachusetts.<\/p>\n
Fuad suggested that Indonesian businesses focus not only on
\nmaking their production lines more efficient but on reducing
\nfreight charges, insurance rates, banking fees and other
\ntransaction costs.<\/p>\n
\"Efficiency is deadly important, but it is not enough. We must
\nbe smart in dealing with international trade,\" Fuad said, adding
\nthat the Indonesian government and businesses should oppose any
\nmeasures introduced by developed countries to inflate transaction
\ncosts.<\/p>\n
John Adam pointed out that Indonesia, along with the more than
\n120 countries grouped in the World Trade Organization, has tried
\nto reduce tariff and non-tariff trade barriers but failed to deal
\nwith the transaction costs that hinder trade growth.<\/p>\n
Reduction<\/p>\n
He suggested that governments in developing countries, like
\nIndonesia, spearhead the effort to reduce transaction costs
\nbecause businesses in those countries, many of which are small
\nand medium size, are not capable of doing so.<\/p>\n
Many countries are involved in multilateral efforts to reduce
\ntrade impediments, but only the countries that are successful in
\nreducing transaction costs will become champions of international
\ntrade, said Adams.<\/p>\n
In the late 19th century, he said, total exchange costs added
\naround 50 percent to production costs, while the level was closer
\nto 35 percent in the beginning of this century.<\/p>\n
\"Today the level of transaction costs remains high. If
\nsomebody said that the level was below 15 percent I would be very
\nsurprised.\"<\/p>\n
Adams explained that international transaction costs include
\ntransport charges and risks; financial charges and risks;
\ninformation and search costs; weights, measures and standards;
\nproperty rights and contract enforcement as well as languages and
\ncommunication.<\/p>\n
\"Language does matter. But economists often underestimate the
\nsignificance of language and communication in framing market and
\nexchange behavior. Unless you speak in the same language, you
\nwill face difficulties in trading,\" Adams said.<\/p>\n
He noted that the most expensive element in transactions costs
\nis information and search costs. \"Unless you get the right
\ninformation you will not be able to sell your products abroad.\"<\/p>\n
Standards, on the other hand, can facilitate trade, if most
\ncountries use the same standards. However, when they employ
\ndifferent standards they will inflict additional transaction
\ncosts.<\/p>\n
Adams warned that such standards can also be used as non-
\ntariff barriers by those who want to protect their domestic
\nmarkets from imported products.<\/p>\n
As transport charges get cheaper, Adam said, freight insurance
\nfees could inflate overall freight costs and make transaction
\ncosts higher than ever.<\/p>\n
As for financial charges and risks, innovations in banking and
\nfinancial intermediation have helped bring down the costs of
\nfinancial services. However, in the absence of a true world
\ncurrency and accounting unit, traders are compelled to hedge
\nthemselves against exchange rate fluctuations, which means higher
\ntransactions costs. (rid)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/reduce-transaction-costs-to-boost-exports-experts-1447893297",
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