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)