Low competitiveness seen as major obstacle to growth

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.