Economist warns of growing deficit in service sector

JAKARTA (JP): Continued growth of the service sector deficit will kill the national economy if no immediate action is taken to curb it, senior economist Dorodjatun Kuntjoro-Jakti warned yesterday.

At IPMI management institute's graduation ceremony, Dorodjatun said the service sector deficit was almost alarming.

"If the growth in the deficit in the service sector continues, the country's current account deficit will be red light, or no longer yellow light as said by minister Mar'ie," he said.

Minister of Finance Mar'ie Muhammad acknowledged late last month that the current account deficit had a yellow light warning.

The minister said Indonesia had a $4.52 billion current account deficit for the April to September period.

Mar'ie said the current account deficit was attributed to a US$6.65 billion services deficit, with a $2.55 billion deficit in freight services and $1.39 billion deficit in government debt.

The merchandise trade surplus dropped to $2.13 billion, down from $2.24 billion for the same period last year. The trade surplus was far short of the $6.65 billion deficit in services.

"Thus, our current account deficit expanded because our surplus in trade could not balance the deficit in services," Mar'ie said.

The current account deficit, which nearly doubled to $6.9 billion for the 1995/1996 fiscal year over the previous fiscal year, is estimated to grow to $8.7 billion for 1996/1997.

Dorodjatun said restructuring of the service sector was the only way the government could reduce the sector's deficit.

All the country's 160 defined services, except those on tourism, had deficits, he said, adding that sea transportation deserved special attention for its huge deficit.

He said the government should not encourage joint ventures or strategic alliances with foreign service companies when it restructured the sector.

Strategic alliances mostly benefited foreign partners rather than locals, Dorodjatun said.

He said Indonesia should pay more attention to improving its service sector before giving foreigners more access.

He acknowledged the country should follow the service sector's trade liberalization trend, either through regional arrangements such as the Asean Free Trade Area, Asia-Pacific Economic Cooperation forum or the World Trade Organization.

"But the government should take care so that opening the service sector to foreign companies does not hurt local players," he said.

He said the private sector should improve its staff to compete amid free trade.

"Free trade cannot be avoided so everybody must prepare to face the free competition era," Dorodjatun said. (hen)