Industrialization not viable in eastern Indonesia: Hadi

Industrialization not viable in eastern Indonesia: Hadi

JAKARTA (JP): An economist warned yesterday that the
development of the manufacturing industry in Indonesia's eastern
provinces will not be viable in the long run.

"The government's policy on industrial expansion to eastern
provinces, including Kalimantan, should just be left behind,"
Hadi Soesastro, executive director of the Centre for Strategic
and International Studies, said at a seminar here.

He argued that building an industrial infrastructure in the
eastern provinces is too expensive and that the manufacturing
industry would not expand there, except for the processing
industry.

"But we have to reduce our dependency on the processing-based
industry as a foreign exchange earner because the industry is
depleting the environment," Hadi said.

He stressed that the development of the eastern provinces
could not be carried out through industrialization.
"Industrialization in these areas has to be avoided."

The eastern provinces, with their natural habitats and
ecology, could be promoted for eco-tourism instead of
industrialization, Hadi suggested. "This way we could generate
more foreign exchange as well as protect and preserve our
environment."

Hadi, who discussed industry in the future of Indonesia at
yesterday's seminar, predicted that Indonesia's industrial
development would remain concentrated in Java through the year
2020.

In 1990, 79 percent of Indonesia's manufacturing activities
were concentrated in Java, 10 percent in Sumatra, 6.1 percent in
Kalimantan, 1.2 percent in Sulawesi and 1.5 percent in other
provinces.

Lampung and South Sumatra will become bumper support for the
industrialization of Java, while North Sumatra and Riau will grow
as new industrial centers through their integration with
Singapore and Malaysia, Hadi said.

Powerhouse

He forecasted that Indonesia will become a manufacturing
powerhouse or even an industrial giant in Asia by the year 2020,
thanks to the high growth of its manufacturing sector at an
average of nine to 10 percent per annum.

"By that year, the size of Indonesia's manufacturing sector
should be twice the current industrialization level of South
Korea or a bit larger than Britain's or close to Italy or
France," Hadi said.

By the target year, Hadi noted that Indonesia's manufacturing
sector would contribute between 32 percent and 34 percent to its
gross domestic product. Last year, the contribution of the
manufacturing sector was 23 percent.

Hadi warned that the government's protection of the
manufacturing sector remained high, despite having been reduced
several times through a number of deregulation packages.

He said that although the nominal tariffs for the
manufacturing industry ranged between 25 percent and 30 percent
before the last May deregulation package, the effective
protection levels for many manufacturing sectors are much higher.

"Even effective protection levels for a number of sectors like
flour, cigarette, leather, shoes, tire, ceramic, electric
households and battery industries reach 600 percent," Hadi
contended.

He noted that high protection levels are one cause of
Indonesia's high economy. Adding to this are conglomerations,
monopolistic and oligopolistic practices, cartels or cartel-like
institutions as well as collusion between business people and
government officials. (rid)