Fri, 12 Aug 1994

Indonesia warned of widening economic gap

JAKARTA (JP): Indonesia, whose gap between the poor and the rich has become notorious in the last two decades, received another warning yesterday following the remark of a senior economist, Sumitro Djojohadikusumo, about the issue.

"I immediately read this eye-catching statement," State Minister of Research and Technology B.J. Habibie said yesterday.

The 77-year-old Sumitro suggested on Wednesday that the government found an investment fund to help small and medium- scale businesses compete with the bigger ones.

"The bank usually prefers to give credits to a certain group of companies," said the professor, referring to big businesses -- particularly those owned by prominent Chinese businessmen.

"A state-owned bank even gave Rp 2.8 trillion (US$1.3 billion) in credits to just two tycoons. We cannot put ourselves at risk by allowing this group to control state assets," he said.

Habibie told reporters yesterday that Sumitro had realistically described the situation and called on the people to prevent the widening of social gap and to find a peaceful solution.

The Chinese-Indonesian community, which accounts for only around 3 percent of the country's total population of over 180 million, has played a dominant role in the economic life of this country over the last three centuries since the Dutch colonial period.

Combined with the ethnic and religious differences, the business gap has transformed itself into a social gap which periodically erupts into riots.

Sumitro, an in-law of President Soeharto, said that the government should have the political will to establish an investment fund.

Referring to a similar fund under the new economic policy of Malaysia, he said that the proposed fund will encourage investment in small-scale businesses which will later narrow the social gap.

Other analysts, Laksamana Sukardi, a former executive of Lippo Bank, Christianto Wibisono, the director of the Indonesian Business Data Center (IBDC), and Arief Budiman, a lecturer at the Salatiga-based Satya Wacana Christian University in Central Java, however, told The Jakarta Post yesterday that the government should learn from past experience before establishing such an investment fund.

"The proposal was made out of desperation over the regular banking procedures," Laksamana said, referring to the failures of the government to force Indonesian banks to channel some 20 percent of their loans to small-scale businesses.

"It would be another political consumption if the government gave no guarantee behind the investment fund," Laksamana said. He added that such a fund should be exempted from tax, transparently managed, capitalized with public investments and providing greater yields than banking deposits to make it a worthwhile project.

Arief Budiman, however, raised the question whether Indonesia could follow the path of Malaysia, saying that Sumitro tries to invite the state to intervene in the ongoing market mechanism to minimize the impact of capitalism.

"The requirement of such an intervention is a clean bureaucracy, with no abuse of power," Arief said. He added that Malaysia could achieve its new economic policy because it has a relatively clean bureaucracy which is totally different from the Indonesian.

"It is not a matter of a free market, but one of the man behind the gun," he added.

Christianto said that democracy and openness are the prerequisites of dealing with the problem of the gap between rich and the poor.

He said that instead of the business gap, he warned about the gap between the Chinese and the other groups in the fields of politics, culture and lifestyle. (09)