Deregulation not enough to address high costs
Deregulation not enough to address high costs
JAKARTA (JP): Sofyan Wanandi, chairman of the widely- diversified Gemala business group, welcomes the latest reform measures but says the new package alone will not strengthen the competitive edge of industries.
Sofyan praised the definitive scheduling of import tariff cuts for the next eight years to 2003 because the measure will provide a high degree of certainty for investors in planning projects.
The latest reform package cuts import tariffs, reduces non- tariff barriers, simplifies some licensing procedures and opens new business areas to foreign investors.
"But I think the new package alone is not enough," said Sofyan, who is viewed as spokesman for most of the country's biggest conglomerates grouped in the Prasetiya Mulya foundation.
He cited two other important tasks which should be undertaken -- designing a better industrial policy that focuses on the areas where Indonesia has the strongest competitive advantage and abolishing the high-cost elements of the economy.
"In my view the momentum of the economic reform process encompasses not only tariff cuts and other forms of deregulation, but also, and even more important, more concerted efforts to remove the high cost components of the economy," Sofyan told The Jakarta Post on Wednesday.
He acknowledged that the tariff reduction would help cut the costs of imports.
"But as long as Indonesian industrial companies are still bearing numerous unnecessary costs related to the implementation of regulations and procedural paperwork they will not be able to remain competitive against suppliers from other countries," he said.
Sofyan added that on top of those high costs businessmen in the country are also paying much higher rates for funds than their competitors overseas.
"The domestic interest rates now exceed 20 percent and they may still increase in view of the likely tougher monetary policy of the central bank," he said.
Industrialists overseas pay interest rates of only between 6 percent to 7 percent, Sofyan said.
"I think the government has been fully aware of the unnecessary costs incurred in the regulatory paperwork and the processing of various kinds of licenses. They are the main causes of the high-cost economy.
"If these costs are not slashed, while the domestic market has been opened wider to import competition through tariff cuts and reduction of non-tariff barriers, many small and medium-scale businesses may be edged out of the market," Sofyan cautioned.
Given the tougher competition in the international market, embarking on more concerted efforts to stop the wastage is imperative.
Sofyan also stressed the urgent need for the government and businessmen to design a better industrial policy which focuses on the areas where the country possesses the strongest competitive advantage.
"The broad-based industrial policy has succeeded in expanding and strengthening the foundation of our manufacturing industries," he noted.
But in the run-up to the free trade areas within ASEAN and the Asia Pacific region in the year 2003 and 2020 respectively, Indonesia urgently needs a clearer direction for its industrial policy.
"We should take stock of the industrial products in which we command the strongest competitive advantages and zero in our resources on developing them into highly competitive exports on the world market," Sofyan added. (vin)