Don't delay regional autonomy

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.