Govt urged to redefine its roles in economy

JAKARTA (JP): Following the worse crisis in three decades, the government's role in the country's economy should now be redefined, economists have suggested.

Muhammad Chatib Bisri, a doctoral candidate at the Australian National University, said here yesterday that the government should now act as an institution which facilitates the smooth operation of market mechanisms.

"The government should no longer intervene directly in the market to achieve economic targets," Chatib told a seminar hosted by the Center for Strategic and International Studies (CSIS).

Instead it should pursue it's objectives by maintaining macroeconomic stability and providing sound physical and institutional infrastructures.

The government should work to ensure that market mechanisms function correctly and its primary aim should be to reduce transaction costs arising from incomplete or incorrect information.

The government must no longer pursue policies to its own benefit which contradict the principles of free market economics.

In the past, Chatib said, the government devised policies to please its own constituents and thereby defend and maintain its existence.

This misuse of power resulted in a massive outflow of capital when the government's position of unchallenged strength was threatened.

"The government should now develop policies to support market forces and no longer use them as a instrument with which to compete with the market," Chatib said.

Chatib argued that the crisis had frightened most private capital out of the country meaning that there was no longer a need for the government to impose capital controls, as some experts have suggested.

He contended that capital controls would be counter-productive because they would discourage the inflows of capital which are so badly needed to revive the economy.

"Moreover, capital controls would create another problem in terms of policy consistency," Chatib said.

CSIS executive director Mari E. Pangestu shared Chatib's view and said that the government should think beyond its own term in office when developing economic policies.

Economic policies should be consistent, no matter what is happening on the political front.

She argued that the government had been particularly inconsistent and created a large number of market distortions in the last five years of former president Soeharto's term in office.

These distortions have created numerous problems in the country's economy and have led some experts to conclude that the government's role in the economy should be trimmed back to the bare minimum.

Mari contended, however, that the government would still need to play an important role in terms of trade liberalization, privatization and creating prices and incentives based on fair competition.

The government, Mari said, should no longer give sole priority to economic growth but should place a stronger emphasis on improving the quality of people's lives, work to lay the foundations for sustainable, fair and equatable development, and strive to uphold democratic values. (rid)