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)