'Cutting paperwork better for exports than incentives'

'Cutting paperwork better for exports than incentives'

JAKARTA (JP): Fundamental policies to streamline trade and
investment administration are more likely to increase exports
than incentives for some exporters, trade expert William E. James
said yesterday.

James, a consultant on trade policy programs at the Ministry
of Industry and Trade, said there was usually a negative
correlation between industry assistance and export performance
because incentives introduced an anti-export bias in the
allocation of a country's resources.

The Thai experience showed that industries receiving special
incentives proved to be better at rent-seeking than increasing
exports, he said.

"Rather than seeking to pick winners for selective incentives
such as tax holidays, an alternative focus on more fundamental
policy efforts to streamline investment and trade administration
and procedures while continuing to deregulate the economy would
be likely to yield better results," James told a seminar
organized by ING Barings Securities.

He criticized the ministry's attempt to pick export winners
for selective incentives as an infeasible strategy to promote
future growth of non-oil exports.

In an effort to boost non-oil exports, the government is
providing special tax, customs and banking breaks to exporters of
textiles, textile-related products, shoes, electronics, wood and
rattan products and leather goods.

He suggested the government cut back red tape for investment
and international trade rather than provide incentives.

Although the investment climate had improved, James said, the
country's investment process remained complicated by the presence
of a cumbersome process of investment approvals, licensing,
permits, regulations and paperwork.

Such complicated processes extended the lag between investment
decisions and implementation, he said.

He observed that an analysis of the relationship between
foreign direct investment and the export propensity of
manufacturers revealed that manufacturers with foreign ownership
of at least 90 percent were more export-oriented than other firms
in the same industries.

Foreign investors had problems with land leases and
limitations on the duration of investment licenses, which deter
the implementation of investment plans, he said.

Indonesia still had many restrictions stopping foreign firms
entering the domestic distribution system as well as divestiture
or excessive performance requirements.

"Restrictions on foreign ownership or divestiture requirements
are probably counterproductive if the aim is to promote export
orientation in manufacturing industries," James said.

Growth of the country's non-oil exports has slowed in recent
years while imports have increased rapidly.

Non-oil exports grew from US$27.1 billion in 1993, to $30.4
billion in 1994 and to $34.9 billion in 1995. Non-oil imports
rose from $26.2 billion in 1993, to $29.6 billion in 1994 and to
$37.7 billion in 1995.

James suggested that the government pay special attention to
labor-intensive industries because their contribution to the
growth of non-oil exports remained the largest.

In the first half of 1996, labor-intensive industries had the
highest growth contribution of all non-oil manufacturers at 22.9
percent, compared with 17.2 percent for human capital-intensive
industries, 12.2 percent for technology-intensive industries and
a negative figure for natural resource-intensive industries.

"The analysis of growth contributions shows that labor-
intensive manufacturers are still promising and it is wrong to
consider them sunset sectors from the perspective of export
development," James said. (rid)

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