Economists warn government over inconsistencies

JAKARTA (JP): Economists warned yesterday that microeconomic policy inconsistencies would weigh down the country's macroeconomic management and eventually cause its downfall.

Sri Mulyani I. Sumartono from the University of Indonesia said many government policies distorted market prices and benefited only certain groups. But the macroeconomy seemed unaffected.

"Our microeconomic situation is messy now, but we don't know why our macroeconomy remains sound. It seems there is no linkage between microeconomic and macroeconomic policy," Sri Mulyani told a seminar at the Centre for Strategic and International Studies.

She cited the national car policy, which exempted a company owned by President Soeharto's son Hutomo Mandala Putra from taxes and import duties for three years, as an example of policy inconsistencies.

"Sooner or later, however, there will be an impact because usually there are delayed effects. If last year our macroeconomy was not affected by our car policy, we might see the effects this year or next, or the next two years," Sri Mulyani added.

Sjahrir, managing director of the Institute for Economic and Financial Research, shared Sri Mulyani's opinion. He said Indonesia would face a macroeconomic catastrophe if the government did not fix the sector.

Sri Mulyani suggested the government minimize its intervention in the already running market mechanism to help create efficient pricing in the market.

In many cases, Sri Mulyani said, government intervention in market mechanism results in higher costs for the people.

"Government intervention in the market mechanism would not be free from vested interests. So, let the market do its job," Sri Mulyani said.

"Sometimes a market mechanism is inhuman, but it is much fairer and more transparent to follow. It helps distribute more efficiently scarce resources to sectors in need," she added.

Unlike in the microeconomic level, Bank Indonesia managing director Boediono said, any mistakes in macroeconomic management would be instantly felt in the market.

"In the era of globalization, the penalties of a policy mistake comes very quickly with no exception. Fortunately, Indonesia so far has a good record in macroeconomic management," Boediono said.

He said Indonesia needed to continue pursuing prudent macroeconomic management to avoid possible macroeconomic disaster.

He also warned that any policy mistakes in the micro level, especially in the financial sector, would also have serious consequences.

"If unlucky, a failure of a financial institution could have a cumulative effect that could head toward a crisis," Boediono said.

Miranda S. Goeltom, an expert at the National Development Planning Board, agreed that any development in the international market would influence Indonesia's macroeconomic management.

Excessive foreign capital inflows, especially speculative ones benefiting from interest rate differentials, would complicate macroeconomic management if not followed by efforts to neutralize the effect.

In addition, Miranda said the government should continue to use a fiscal policy to influence market behavior, especially in terms of employment, price stability and economic growth.

She said the government should improve revenue from taxes rather than from foreign borrowing to finance its development spending.

She said the government could still improve its tax revenue by intensifying tax collections, especially from small taxpayers, and maximizing taxes from large taxpayers.

"I suggest the government form a special unit, consisting of noncorrupt and knowledgeable tax officials, to enhance tax revenue from large taxpayers," she said.

Large taxpayers were likely to understate their income because they well-understand the tax regulations and the loopholes, she said.

"By assigning a special team to target them, we would be able to increase our income tax revenue," Miranda said. (rid)