Economic reform half-hearted: Economist
Muninggar Sri Saraswati and Dadan Wijaksana, The Jakarta Post, Jakarta
Half-hearted economic reform in the past five years has resulted in relatively modest economic growth so far, putting a lid on the country's faltering efforts to alleviate poverty, an economist has said.
Chatib Basri, a respected expert at the Institute for Economic and Social Research in the Faculty of Economics of the University of Indonesia (LPEM-UI), told a seminar here on Monday the pace of economic expansion had been slower compared with the increase in employment demand.
As stated in his paper, Chatib highlighted the fact that five years after the crisis, the economy managed to grow only by about 3 percent to 4 percent, barely sufficient to cope with some 2.5 million people entering the workforce each year.
In 2002, the paper said, employment absorption registered mediocre growth in almost all major economic sectors.
While construction posted the highest growth, the manufacturing and agricultural sectors remained in the doldrums, posting an even lower level than that of the previous year.
Chatib cited the collapse in investment, both foreign and domestic, as the main reason for the country's slow economic growth.
While domestic consumption remained strong, even after the crisis -- although it has also begun showing signs of slowing down lately -- investment and exports had failed, relatively speaking, to perform at a level needed to become the main driver of economic growth.
Consumer consumption was making up about 70 percent of overall gross domestic product, while exports and investment accounted for around 10 percent to 15 percent respectively.
Chatib blamed weak reform commitments in areas that are crucial to an improvement of the adverse investment climate.
Not only has there been little progress in areas such as legal reform, security, labor-related issues, regional autonomy and others, there is also a lack of action on the part of the government to address certain issues that are detrimental to investment.
Most notably, according to Chatib, was the level of extra funds that investors had to set aside to do business in the country.
Citing the results of research, the extra cost, mostly in the form of bribery of bureaucrats, accounted for about 10 percent of total production costs. In some instances, especially outside Java, the amount could account for up to 12 percent of production costs.
"And these extra costs occur at all sizes and scales of business -- from small, small-medium, medium-large to large companies," Chatib said.
Improvement in the state of trade and investment should therefore be high on the government's reform agenda, with the focus being on maintaining trade reform, addressing the high-cost economy and improving infrastructure because only through such means could Indonesia attract back much-needed investment, he added.
A significant rise in investment would then be beneficial in helping to drive economic growth to a level needed to absorb millions of jobless Indonesians.