Possible political backlash endangers liberalization
JAKARTA (JP): Weakening government credibility and a possible political backlash could endanger Indonesia's trade and investment liberalization in the Asia Pacific Economic Cooperation (APEC) forum, an analyst warned yesterday.
APEC Eminent Persons Group member Suhadi Mangkusuwondo said wrong policies and policy inconsistency could weaken a government's credibility.
"The national car policy, for instance, does not help the Indonesian government's credibility," Suhadi said at a seminar organized by the Centre for Strategic and International Studies (CSIS).
The government's controversial car policy, announced in February last year, grants duty and tax breaks to PT Timor Putra Nasional to develop a sedan, called the Timor, in cooperation with South Korea's Kia Motors Corp.
"Also the government's withdrawal of a number of agricultural products from the ASEAN free trade agreement would undermine its credibility," Suhadi said.
Last year Indonesia successfully excluded sensitive farm products, namely rice and sugar, from ASEAN's free trade agenda.
"The government's sudden protection of upstream chemical products does not help its credibility at all," Suhadi said.
Last June the government raised the tariff protection level for ethylene and propylene to 25 percent from 5 percent.
It also raised the tariff protection level for polyethylene and polypropylene -- derivatives of ethylene and propylene -- to 40 percent from 20 percent.
Another threat to trade liberalization momentum was a possible political backlash, which might arise with pressure from certain groups or businesses the APEC liberalization program affects.
"Although trade and investment liberalization will bring many benefits to the national economy, it may hit certain sectors which will become the losers," Suhadi said.
He cited examples of political backlash in some American and African countries, in which the people resisted government liberalization moves.
CSIS executive director Mari E. Pangestu agreed with Suhadi and said trade liberalization often initially caused the collapse of certain industries and increased unemployment.
"In the liberalization process there will always be winners and losers. If we do not anticipate this matter, it might hinder the pace of liberalization process," Mari said.
She suggested the government form a team to monitor the impact of trade and investment liberalization on businesses.
To gain more from liberalization Suhadi said the government and business should cooperate to find a "link and match" between the liberalization drive and improving domestic efficiency.
The efficiency improvements should be pursued through simplifying licensing procedures, reducing transaction costs, improving infrastructure, promoting partnerships between large and small businesses and more training for workers.
Suhadi also suggested the government look for a "link and match" between trade and investment liberalization and economic and technical cooperation under APEC's Manila Action Plan. (rid)