IMF praises RI's success, urges further deregulation

IMF praises RI's success, urges further deregulation

JAKARTA (JP): The International Monetary Fund (IMF) has
praised Indonesia's success in reducing poverty but urged further
deregulation and abolishment of monopolies to help raise the
living standards of low-income groups and improve equity.

The Washington-based IMF said in the latest issue of the IMF
Survey that Indonesia's strong economic performance over the past
three decades had resulted in rapid income growth, a substantial
reduction in poverty and a marked improvement in many health and
social indicators.

It noted the government had persistently addressed poverty and
income distribution problems through targeted measures within a
framework of stable macroeconomic policies, high investment and
saving rates and structural reforms to liberalize markets.

"Indonesia's progress in these areas has generally been faster
than any other ASEAN member," the IMF said.

But it said continued rapid structural reform would be
essential to accommodate a large increase in the labor supply
stemming from population growth and demographic changes.

"Further deregulation would also help raise the living
standards of low-income groups and improve equity," it said.

The survey noted that external agricultural trade was still
largely prohibited and prices of commodities -- such as rice,
soybean, sugar and wheat -- were therefore higher than prevailing
prices under free trade.

The imports of those commodities are currently monopolized by
the National Logistic Agency (Bulog), which is also responsible
for domestic distribution of several food commodities like sugar,
wheatflour and soybean.

But the government announced last week it would scrap Bulog's
monopoly to allow consumers to purchase agriculture produce at
prevailing market prices.

The IMF also suggested the government further reduce trade
barriers to spur job creation and labor-intensive manufacturing.

"Protection of domestic industries by tariffs and quantitative
import restrictions creates opportunities to earn economic rent,
which impedes a fairer income distribution," it said.

The fund suggested that the government apply the tax system in
a "more evenhanded and transparent manner" by reducing exemptions
and improving compliance to help reduce income disparities.

The IMF praised Indonesia's past achievements, especially in
poverty alleviation, human resources development and income
distribution.

But it added reductions in poverty and improvements in income
distribution would be more difficult to achieve than in the past.

Indonesia would therefore require continued macroeconomic
stability and structural reforms to secure fast growth and
improve efficiency by minimizing policy-induced distortions, it
said.

Unlike many other developing countries, the fund said,
Indonesia has pursued industrialization with a strong
agricultural base.

The agriculture sector grew by more than 4 percent a year on
average during the 1970s and 1980s in response to improvements in
irrigation and rural infrastructure, it said.

"This laid the foundation for sustained poverty alleviation
during the early 1970s, when more than half the population and
over 80 percent of the poor depended on agriculture," the IMF
said.

But since the mid-1980s, the expansion of labor intensive
manufacturing has been the main source of economic growth and
poverty reduction.

The number of people living below the officially defined
poverty line declined to about 11 percent last year from 60
percent in 1970.

In human resources development, the fund acknowledged
Indonesia's success in achieving universal primary school
education in the early 1980s.

The country's secondary school enrollment rate increased
almost threefold since 1970 although it was still only about 50
percent.

The fund also noted that income inequality in Indonesia had
stayed relatively constant, at about 0.34 in Gini coefficient --
a measure of income inequality ranging from zero (perfect
equality) to one (perfect inequality) -- since 1970.

In rural areas, however, the Gini coefficient fell to 0.26
percent in 1993 from 0.35 percent in the mid-1960s partly due to
urbanization and development programs for rural areas. (rid)

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