'Economy still not efficient'
JAKARTA (JP): Indonesia's most senior economist Sumitro Djojohadikusumo reaffirmed last night the urgent need to reduce the incremental capital output ratio and the dependency ratio in order to raise the international competitiveness of the Indonesian economy.
Sumitro told a gathering of thousands of the alumni of the University of Indonesia's Djakarta School of Economics at the Convention Center that Indonesia's economy is still grossly inefficient, citing the latest annual World Competitiveness Report.
"The 1995 World Competitiveness Report of the Geneva-based World Economic Forum puts Indonesia in the 33rd rank among 48 countries covered ...far behind even Malaysia and Thailand, which are in the 21st and 26th rank, respectively," Sumitro noted.
Indonesia should therefore work harder to improve the efficiency of its economy by reducing its the amount of capital investment needed to generate one unit of output, a ratio known by the acronym "ICOR," as well as the dependence ratio of the productive workers, he said.
A lower ICOR, he added, would make investments more efficient and effective, therefore strengthening the competitiveness of the economy.
Misunderstanding
On the occasion Sumitro noted what he saw as a misunderstanding regarding "comparative advantages" and "competitive advantages" in relation to efforts to strengthen the competitiveness of the economy.
In this context, he referred to a report in the Kompas daily on Sept.5 which quoted State Minister for Research and Technology B.J. Habibie as saying that "we should zero in on our competitive advantages and leave out our comparative advantages, which are predicated on cheap manpower."
He said if the daily's quotation of Habibie's remarks was correct, the statement contained a double error -- an error of fact and an error of logic.
"Forgive me, even though personally I am on excellent terms with Habibie -- and nowadays ministers cannot make errors and are always right -- I should speak my mind about the errors of fact and logic," Sumitro said, adding that he found confusing the practice of ministers to talk in different languages.
"But I also fully realize that under the Pancasila democracy, differences of opinion are tolerated," he said.
Sumitro continued: "I am afraid a double error occurred: an error of fact and an error of logic."
Habibie's statement contained an error of fact because comparative advantage is not identical with the employment of cheap labor, Sumitro said.
The economic theories on comparative advantage conceived first by economist David Ricardo, then by Heckscher and Ohlin Haberler, clearly hold that the pattern of comparative advantage by itself depends on the interaction among the factors of proportions, such as resource endowments, technology, Sumitro said.
The error of logic in Habibie's statement lies in the fact that in order to increase the competitive advantage a country need not, a priori, disregard economic activities based on comparative advantage.
"The real issue is how can we deploy our given comparative advantage to improve the efficiency of our national economy so as to strengthen the competitive edge of our economy," he added.
Therefore, the problem is not "either/or," he said. Rather, the two kinds of advantages should be developed simultaneously in order to complement and strengthen each other, according to Sumitro.
In contrast to his previous public speeches, which have always been well-prepared and well-structured, Sumitro spoke from only brief notes last night.
His speech included a number of wide digressions and asides, at one point addressing the subject of democracy.
According to Sumitro, one of the two main prerequisites for the development of democracy is a high degree of tolerance of differences of opinions.
"Another prerequisite is that those who issue regulations or directives should be the first to honor those rules," Sumitro added. (rid/vin)