Low competitiveness seen as major obstacle to growth
The Jakarta Post, Jakarta
Low competitiveness in the country's manufacturing products is a major obstacle in the efforts to push economic growth, according to a senior economist.
Centre for Strategic and International Studies (CSIS) economist Mari E. Pangestu said on Wednesday that low competitiveness had hampered both exports and investment, two key factors to accelerate economic growth.
"The declining competitiveness of our products is mainly a result of higher labor costs and a high-cost economy due to corruption and unnecessary additional fees.
The depreciation of the rupiah, which actually could bring benefits for our products, is outweighed by the rising inflation in the domestic market," Mari said during a seminar held by the Indonesian Economists Association (ISEI).
Labor costs, she said, were now estimated to stand at US$35 higher than that before the 1997 crisis but were not parallel with higher productivity, and the problem was exacerbated by unsupportive labor laws.
"The high-cost economy we have here doesn't only affect financing, but also creates uncertainty because industry players will have to put more of their products in the storerooms, and we will be considered unreliable in product delivery. In time, it affects our position in the regional and global production network," Mari added.
The country's economy has been growing at a meager annual rate of around 4 percent during the past couple of years driven mainly by strong domestic consumption as exports and investments remain weak.
Central Bank senior deputy governor Miranda S. Goeltom, who also attended the seminar, agreed that the declining competitiveness of Indonesian products would thus increase the country's dependence on the export performance of only the main commodities and certain export destinations.
"This is also one of the factors that contribute to the many risks that one has to seriously take into account in making future business plans here," said Miranda.
Regarding the unsupportive infrastructure, Mari explained that the problem had caused increases in export fees.
"According to an estimation, Indonesia could boost its exports by 18 percent if logistics and procedures at the ports could reach a level of efficiency of even only half the average of Asia-Pacific countries," she said.
Therefore, Mari, rumored to be the next coordinating minister for the economy under a Megawati Soekarnoputri administration, suggested improvement in macroeconomic areas, international trade, and investment.
For macroeconomic issues, the government must stabilize and control inflation, and tackle the structural problems that cause inflation, such as distribution and transportation issues, she asserted.
For international trade, Mari said the country should remove completely all non-tariff barriers and reduce the high-cost economy.
"I think we should also review the effectiveness of tax on luxury goods and simplify the bureaucracy at ports," said Mari.
While for investment, she suggested that the Capital Investment Coordinating Board seriously implement the one-stop service to ease procedures and quickly find solutions to any cases involving foreign investors.