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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