Economic reform half-hearted: Economist

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.