Asia-Pacific enjoys new growth

This is the second of two articles based on a paper presented by State Minister for National Development Planning/Chairman of Bappenas Ginandjar Kartasasmita at a seminar organized by The Jakarta Post and the Asia Pacific Economics Group.

JAKARTA: We in Indonesia are confident of our ability to compete, take advantage of opportunities, and deal with the problems these activities create. Our confidence is based on a number of things.

First, there is our track record. With export growth averaging above 15 percent and real GDP growth consistently over 7 percent, we have demonstrated our competitive ability over the last seven years. We have multibillion dollar exports in untraditional areas ranging from textiles to plywood, to more recent exports in the areas of shoes, furniture, electronics, chemicals and pulp and paper. And new areas arise continuously.

It appears, from Indonesia, that a new wave of industrial restructuring is taking place in East Asia. With this restructuring and liberalized policies in trade and investment we are seeing domestic and foreign investment approvals at rates never seen before.

Much of our existing industrial capital is new. As industrialization proceeds, we are fortunate that new capital can be placed in highly competitive sectors compatible with the new world economic system being ushered in by the World Trade Organization and the Asia Pacific Economic Cooperation forum. Our industrial annual growth rate of more than 12 percent will facilitate restructuring. The demand for industrial labor is growing rapidly as labor productivity increases equally quickly.

Our planning for the next five and 25 years is set in the context of these global and domestic trends. In the last two years our economy has grown at 7.5 percent and 8 percent and we anticipate being able to maintain an average of 7 percent growth for the rest of our long-term plan .

With this growth we expect to quadruple real incomes in 25 years. By 2018 we will have an economy close to US$1 trillion in 1993 dollar terms and almost double that in purchasing power parity terms. Such figures would make Indonesia the fifth or sixth largest economy in the world.

Like the rest of the region, this growth will literally transform the country. Our strategy emphasizes using our comparative and competitive advantage in industrial areas as the main source of growth. Even now the industrial sector has reached almost a quarter of the economy and its share is increasing rapidly. Since the economy will be so much larger then this industrial sector will be correspondingly deeper and wider than what we have today. This industrial transformation will be accompanied by an equally momentous shift of the Indonesian population from rural to urban areas.

It is estimated that today's urban population of 65 million (or 35 percent of the population) will grow to 155 million people (60 percent) by 2018. Simple arithmetic indicates that this is equivalent to the number of new urban dwellers increasing by between two to three million people every year over this period. Thus the Indonesia of the future will have more urban dwellers (with many more living in apartments), more people working in high-skilled intensive factories and a larger and more professionally oriented service sector.

The large number of people working in the industrial sector in urban areas will reduce the population pressure in rural areas and make the remaining farmers more productive and able to afford more capital-intensive farming techniques. In other words the rural areas will also become a vast and growing market for industrial products and thereby support the industrial transformation.

We also anticipate that our current policy initiatives for small and medium firms will pay off in an increasingly dynamic industrial structure. Such a structure should be comprised of foreign (or mixed ownership) firms, their large domestic competitors (competing both here and abroad) and a multitude of efficient, modern smaller companies that are the seedbed of new generations of firms. With this transformation the middle class should become the backbone of our maturing economy.

In fact, our development strategy puts an increased emphasis on human development through increased investment in education and health designed to raise welfare and income by providing better educated and healthier workers, managers, professionals and entrepreneurs.

Another key to our development strategy is providing critical infrastructure, which in the global and regional perspectives I have commented upon earlier. Infrastructure shortfalls have created a number of critical shortages that we must work to correct. This is an area where we have moved to consolidate our partnership with the private sector.

The demands on the government in social infrastructure areas (education, health, etc.), and in conventional infrastructure areas with limited direct profitability (local roads, sanitation, etc.) are straining our financing capabilities. In addition, we have come to appreciate that the private sector, effectively regulated, can often provide services more efficiently that were traditionally provided by the government. Thus in telecommunications, power generation, toll roads, and other areas we have begun to contract out major infrastructure projects.

We also know that high growth does not automatically translate into equal opportunities for all and, in fact, people with more education, located closer to economically dynamic areas, or with other advantages are in a better position to take advantage of improved conditions than those living in less fortunate circumstances.

For instance, recent manufacturing investment has been too concentrated on Java, both limiting the ability of other regions to achieve their potential and creating environmental stress on Java itself. While rapid growth often raises incomes, at the same time inequality can grow, and sometimes rapidly. To maintain the growth momentum with the minimum threat to stability, the government must address these problems. The government will use its regulatory and spending powers to increase opportunities for regions and groups left behind, to help them attain their economic potential.

May I conclude by restating my thesis that the forces behind globalization and world-wide restructuring are much stronger than, and earlier than, recent institutional developments. Changing capabilities and costs have made it possible to produce goods anywhere for markets located anywhere in the world. This technological revolution has forever raised our awareness and access to each other's resources and markets. Rising awareness and access have increased investment, trade and growth -- especially in our region where policy and the political climate have been accommodating.

In Indonesia, we are gearing ourselves to meet the promises of the future by steadily opening up our economy to international competition and foreign investment.

Window: Indonesia in the future will have more urban dwellers, more people working in modern skill intensive factories and a larger and more professionally oriented service sector.