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This month sees Indonesia entering its second 25-year development period. Economist Pande Radja Silalahi analyzes the challenges presently facing the nation. _____________________________________________________________________
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JAKARTA (JP): It is a fact that the economic development during the last 25 years produced meaningful results as well as challenges and problems.
Among the most outstanding changes so far are: 1. The average per capita income at constant prices increased by more than four times. However, there is still a disparity in the distribution of income and about 26 million Indonesian people still live under poverty line. 2. The economy of Indonesia has experienced structural changes from the previous agricultural base to an industrial base. 3. Economic activities tend to concentrate in cities which results in urbanization with its related problems. 4. Dependence on foreign aid is increasing even though the national rate of savings is not that small compared to that of several other countries. 5. Dependence on the income from oil is still significant, even though Indonesia has tried hard to increase income from non- oil/gas exports, as well as tax revenues, over the past several years.
The many constraints encountered at the beginning of the First Stage of the Long-Term Economic Development Program were addressed through the applied import substitution strategy. This strategy has the character of being centralistic and is not connected in a planned way to the "export promotion strategy."
The inadequacy of attention to the weaknesses in the strategy and the inadequacy of consistent endeavors to remove them have created several problems.
Among them are the weak linkages between the economic sectors, inadequacy of growth in the number of competent entrepreneurs, concentration of economic activities among a small number of people, the weak spirit to achieve and create efficiency and the concentration of economic activities in certain areas, in particular the Western part of Indonesia.
Globalization and the drop in oil prices have thrown light on the weaknesses attached to the strategy of economic development in Indonesia so that in response over the last few years the government has taken several steps to make the Indonesian economy efficient.
It cannot be denied that efficiency in the use of capital in Indonesia runs far behind that of several countries. Factors which lead to this condition are well known, even if the weight of the factors in the creation of the inefficiency is not precisely known.
Experts have said time and time again that if Indonesia can increase its "incremental capital output ratio" to the same level as that in several neighboring countries, then achieving the level of economic growth set forth in the Second Stage of Long- Term Development will be possible without depending on foreign aid.
Indonesia has been successful in reducing its population growth. However, in order to create jobs for the new employment seekers it is necessary that there should be a high level of economic growth. Based on the existing data, it can be said that the problem of employment will become ever more serious for Indonesia.
Therefore, matters related to the minimum wage need special attention, especially because there is a great possibility that in this Second Stage of Long-Term Development a "market failure" in the labor sector cannot be avoided.
Keeping economic development centralistic, as has been done up to now, was possibly the most efficient way of dealing with the problems in the past. However, in the future this policy cannot be maintained. It is now necessary to decentralize the economic development in a planned way, consistently and in stages. This will not be an easy task since this requires a change in the existing governmental organization.
Facts show that the great dependence of the Indonesian economy on the "political psychology commodity" of oil/gas is one of the main factors which decreases its elasticity in the face of changes.
The efforts of the government to increase exports goes together with the endeavor to diversify products and the area of marketing is the right answer. During the last several years it has become evident that Indonesian exports can grow at a rapid rate and that the variety of export products is increasing. The question is: How much in line with the efforts at creating a strong linkage between the economic sectors of trade and industry is that export drive?
The awareness of the importance of human resources as set forth in the current Repelita VI five year plan is something that is very important in the development to come. Experience has shown that the problem resulting due to the non-existence of strong relations between the institutes which produce manpower with the users of manpower still exists. Therefore, bridging the gap on an optimal level is imperative.
The process of globalization, which is moving at ever greater speeds due to the strength of market forces, has shown clearly that as competition becomes fiercer, the economies of each country in the world must become more transparent. Hostilities in several forms will grow against actions contrary to the market law.
Therefore, from now on Indonesia must consistently make efforts to clear away obstacles which can be categorized as being unfriendly to the market forces, such as the practice of monopoly, unhealthy competition, disguised protection and concealed discriminative actions.
In this Second Stage of Long-Term Economic Development it can be said that the success of Indonesia in creating sustainable economic development will depends a great deal on its ability to make the market mechanism operate properly and at the same time to reduce the disparity occurring in the distribution of economic activities and the value added factor.
The writer is a senior staff member of the Centre for Strategic and International Studies.