Economist queries govt's role in the market

MEDAN, North Sumatra (JP): The government's intervention in a managed market economy may not guarantee greater welfare for the people if it is not carried out flexibly and transparently, an economist says.

Anwar Nasution of the University of Indonesia's School of Economics said here yesterday that while there is no formula to determine how much a government should intervene in a market, sometimes no intervention is better.

He cited Bank Indonesia's recent intervention into privately- owned Bank Pacific, which he said showed a lack of transparency on the part of the central bank.

"Of course, intervention by BI was needed, but the assistance it gave to Bank Pacific was not transparent... And such support has been given many times," he said at the 13th congress of the Indonesian Economists Association.

Nasution said he was convinced that BI did not merely provide technical assistance but financial support as well.

Such cases, he said, show that part of BI's domestic credit agenda is to help certain banks in trouble.

"Lack of transparency in the banks' mechanisms and goals makes BI a lender of last resort for the banks it favors," he said.

Nasution said it will be difficult for BI to implement a tight money policy and narrow the gap between interest rates in Indonesia and those overseas if the banking industry's financial condition and banking practices are not improved.

Miranda S. Goeltom, a deputy assistant to the coordinating minister for economy and finance, acknowledged the significant role of the government in a managed market economy. She added, however, that the private sector must help ensure that government intervention is kept to a level that doesn't distort too much.

Professionalism

"This can be done by increasing the professional competence of everyone who has an influence over price regulations or output. Businessmen must be professional entrepreneurs, executive agencies must be professional bureaucrats and legislators must be professional parliamentarians," she said.

Professionalism, Goeltom said, is needed for businesses to operate as efficiently as possible. It is also important for the government to have almost the same amount of information on cost production as businesses and for the House of Representatives to be aware of the appropriate balance between the rent obtained by businesses and the cost put out for it, she said.

As a first step in this direction, Goeltom suggested that all players increase their knowledge and ability to analyze the market in order to level the playing field.

At the same time, it is also necessary to improve legal and regulatory procedures.

"Inefficiency can only get worse if there is collusion between the government, businesses and the controlling body," Goeltom said.

"Least-distorted government intervention is most often needed in situations where the market economy fails," she added. (pwn)