Govt should gear up development in eastern region

Govt should gear up development in eastern region

MANADO, N. Sulawesi (JP): The central government has been
challenged to deliver on its 1990 promise to accelerate the pace
of economic development in the country's eastern islands.

Lucky Sondakh, professor of economics at Sam Ratulangi
University, recalled yesterday that President Soeharto had
proclaimed the east-go policy in 1990 which the 1993 Broad
Outlines of State Policy echo.

"The problem, though, the political will has yet to be
followed by political courage and then by political action,"
Sondakh told a conference of economists.

He pointed out at the 8th meeting of the Association of
Indonesian Economists (ISEI) that North Sulawesi's gross regional
domestic product in 1970 ranked the 11th highest among all
provinces.

"But in 1994, N. Sulawesi's position declined to the 18th
rank."

He added that the gross regional domestic product outside Java
was, on average, higher than that in Java until 1970. But the
condition has now been reversed.

Eastern Indonesia covers Sulawesi, Nusa Tenggara, Maluku and
Irian Jaya and account for 11 percent of the country's
population.

Sondakh blamed the wide gap between the development of the
eastern regions and Java and Sumatra on what he termed as a
double developmental squeeze model (policy dualism). He said the
agricultural sector had been squeezed in order to develop the
modern (manufacturing) sector over the past 25 years.

Most of the major agricultural commodities in the eastern
provinces, although heavily regulated, are not protected.
Industrial development in Java, however, has been heavily
protected, he pointed out.

He quoted the results of a study made in 1985 which concluded
that such major farm crops in Java as maize, soybean, peanut,
dairy products, fruit and vegetables were given effective
protection rates between 8.8 to 221 percent.

But such major commodities as nutmeg, fish, timber, rattan,
coconuts and cloves in the eastern provinces had been left
largely unprotected, he claimed.

Agroindustry, supposed to be the sector with the highest
comparative advantage in the eastern region, has therefore not
developed, he added.

He said N.Sulawesi, for example, has remained a major supplier
of such primary commodities as nutmeg, rattan, tuna, cloves and
coconuts while the value added by processing is enjoyed by
industries in Java or in Singapore and other countries.

Sondakh said the squeezing policy was made possible by the
weak bargaining position of the local administrations vis-a-vis
the central government.

"That is the consequence of a heavily centralized government
system which makes the power of the state much more stronger than
that of society," he stressed.

Transforming

Sondakh acknowledged that the policy has built up an
industrial base in Java where the manufacturing sector's
contribution to gross domestic product has exceeded 20 percent,
compared to a mere 7 percent in the eastern provinces.

He added that policy dualism has also spurred the growth and
capital accumulation of industrial firms.

Sondakh sees the growth and accumulation not as a result of
productivity but as generated by transfer payments from the
heavily regulated, yet largely unprotected, agricultural sector
to the manufacturing sector.

He said North Sulawesi and other provinces in the eastern
provinces have been asked to develop agroindustry.

"But how can agroindustry be developed if the trading of
agricultural commodities remains largely inefficient with
numerous distortions caused by regulations?" he asked.

According to Sondakh, agroindustry also requires what he calls
an induced development policy to stimulate research capable of
developing culture and processing technology.

Moreover, he said, a significant increase in the production of
agricultural commodities, being price inelastic, tend to worsen
farmers' terms of trade.

No wonder the bargaining position of the farmers is very weak,
he added.

Sondakh acknowledged the important role of village
cooperatives as a trading institution to develop agribusiness in
the broadest sense.

"The problem, though, is that most of the existing village
cooperatives have not been engaged in the process of generating
value added. They mostly function as middlemen or even loan
sharks," he pointed out.

The most obvious example, he added, is the role played by
village cooperatives in the clove trade in North Sulawesi, the
country's largest producer of the spice.

"The farmers entrust their fate to their village cooperatives
but these cooperatives instead tend to function merely as an
instrument for surplus appropriation. This institution is merely
a tool of the capital owner to squeeze," he argued.

In Sondakh's view, agricultural commodities should be
deregulated and its market restructured to empower producers and
consumers.

"Strange, though, is the fact that while the government has
encouraged the establishment of associations by traders and
industrialists, it virtually does nothing to enhance the
development of farmers' associations." (vin)