Don't delay regional autonomy

By A. Tony Prasetiantono

YOGYAKARTA (JP): There is an analogy between last year's two laws on regional autonomy and intergovernmental fiscal balances (Nos.22 and 25) and trade liberalization.

Trade liberalization has been an obsession of classical economists starting from David Ricardo. In 1944 in Bretton Woods, the United States, nations attempted to set up the International Trade Organization to rid international trade from any distortions.

But this attempt proved to be futile and the organization was reduced into a loose and nonbinding General Agreement on Tariffs and Trade (GATT) organization in 1947. Years spent trying to set up a truly global trade organization bore fruit in 1995 when the World Trade Organization (WTO) replaced GATT.

Unfortunately, the WTO is still permeated by disputes between its member countries. This has prevented the organization from implementing a comprehensiveness principle.

Even a country as advanced as Japan still feels the need to protect its agriculture, since it realizes that it can not compete with developing countries. The Japanese government's obsession with food security stems from its traumatic experience during World War II. Should there be a war, how would it be able to ensure its food security other than producing it locally?

Seen from this perspective, regional autonomy is similar to international trade liberalization. On the one hand, economic theories support its prompt realization, but on the other hand its implementation may be hampered by unskilled operators.

One nagging question surrounding regional autonomy is whether regional administrators are ready to implement it. Are their human and natural resources adequate?

Despite the numerous unanswered questions, our attitude to regional autonomy should be the same as it is to trade liberalization: like it or not, ready or not, we have to face it. Why is that so?

There are at least two most important reasons why regional autonomy is necessary. First, the nation's money and credit supply is concentrated in Jakarta and its surrounding areas. According to the Bank of Indonesia, as much as 70 percent of the whole money and credit supply in the country. This is grossly unfair because Jakarta has only 12 million people (or 15 million if Greater Jakarta is included), out of a national population of 205 million.

Through regional autonomy, this imbalanced situation can be corrected by breaking up the concentration of money and credit supply and distributing it to the regions. This will bring an economic engine and stimulus to regional development.

Secondly, wider autonomy will stimulate creativity and encourage regional administrators to take economic deregulation measures, particularly in attracting foreign investors. China is a case in point. Despite being a communist country, it is very liberal in its foreign investment policy. It too went through an experience not unlike the one Indonesia is undergoing today, when students were massacred in Beijing's Tiananmen square in 1989.

The international community punished China and foreign investors refused to invest in the country. Only through intensive lobbying and support from overseas Chinese plus favorable trade regulations could it win back foreign investors.

China then authorized regional administrations to issue investment licenses. Its endeavor paid off when it managed to attract US$100 billion worth of investment in 1995. Increased autonomy on the regional level has surely contributed to this success.

However, providing wider autonomy to regional governments has its drawbacks. One of the reasons for granting wider autonomy is to narrow the income gap. However, according to Harvard University economist Simon Kuznets, initially at least, what will happen is a widening income gap. Only when autonomy reaches a certain level of development will a more equitable economic condition be achieved, followed by a final leveling off stage.

Thus, 2001 may see a widening income gap as the program kicks off. Four provinces: Aceh, Riau, East Kalimantan and Irian Jaya -- due to their immense wealth of natural resources -- will surge ahead. However, less endowed provinces such as East Nusa Tenggara will become poorer, in line with the reduction in their development budget from the central government. This is something that should be noted amid public expectations of a quick fix once wider autonomy is granted.

In addition, the preparedness of regional administrations to cope with wider autonomy has always been a bone of contention. Like trade liberalization, regional autonomy should be viewed as an absolute requirement. Nothing should stand in the way toward its implementation, no matter how unprepared regional administrations may be. Regional autonomy is a must, whether one likes to see it from an economic or a political point of view.

Politically speaking, wider regional autonomy is a way out of the deadlock stemming from the rising demand of disintegration throughout the country, particularly from those provinces with extensive natural resources.

What is needed to smoothen the regional autonomy program is to improve the quality of human resources in the regions. A standard approach is to send more people to school. This, however, will take a relatively long time. A more efficient way is to send officials from either central government ministries or the National Development Agency to the regions.

Should this measure meet with resistance due to problems linked to ethnicity, the central government could send officials who are natives of the recipient provinces. If the central government can not accomplish this due to shortages of certain natives, then it should proceed with the program notwithstanding.

A transition period is necessitated until the provinces in question can eventually meet their human resources requirements. Through limited observations of the many provinces I have visited, it is clear that the quality of human resources in regional administrations is less than satisfactory. But, this should never be used as an excuse to postpone the autonomy program as stipulated in the two laws mentioned above.

It is no longer a question of like or dislike, willing or unwilling, prepared or unprepared. Regional autonomy is a must and its implementation cannot be postponed.

It is one of the safety nets against threats of disintegration and chronic inequitable distribution of income.

The writer is an economist from Gadjah Mada University, Yogyakarta.