Thu, 06 May 2010

From: The Jakarta Globe

By Titania Veda
Seen from Jakarta’s glass-walled towers, the government’s reform drive is bearing fruit, with rising economic growth and foreign investment promising an even brighter future.

But in the grimy Pasar Senen market, char-ridden from a recent fire, the economic benefits reaped by the city’s financiers have yet to trickle down to small informal businesses.

A seller of locally made handbags, Sri Wahyuni, shares a tiny kiosk with another merchant because she cannot afford renting her own.

Indonesia’s reputation as one of Southeast Asia’s star performers after sailing through the global financial crisis relatively unscathed means nothing to her. She continues to struggle for her livelihood as she has done for 25 years.

Since Reformasi, the government has tried to reduce corruption within public institutions. The Finance Ministry was the first to undergo bureaucratic reform, in 2007. But poverty levels have not dropped and the access to economic resources continues to be unbalanced.

Joachim von Amsberg, the World Bank’s country director for Indonesia, said although its main focus was on tackling corruption and ensuring a healthy fiscal position, the government also needed to take social indicators into account.

“You have a committed government that wants to make a difference but it has a huge implementation challenge,” he said.

According to the World Food Program, 52 percent of Indonesians live on less than $2 a day, with an estimated 35 million people living on less than 65 cents a day.

Central Statistics Agency (BPS) data show an average factory worker earns Rp 248,000 ($27.28) per month, while universities charge Rp 1 million or more for tuition per semester.

Von Amsberg said it was critical that everyday people felt that growth benefited them and that development was not just something for people living in high-rise apartments. The huge informal sector needed to feel the positive effects as well.

Last year, 68 percent of Indonesians worked in the informal sector, according to the International Labor Organization.

Like many business owners in the sector, Sri Wahyuni does not have a taxpayer registration (NPWP) number and does not pay taxes. Her imitation Chanel and Gucci bags cost Rp 35,000 each to produce and sell for around Rp 39,000, leaving her with an extremely narrow profit margin.

“Most of them don’t register themselves for an NPWP number because they’re afraid to be chased by the tax men,” said Sudianto, who is in charge of regional sales management and marketing at PT Bank Danamon’s micro business savings and loans unit. “They don’t really understand how the tax system works.”

The informal sector is also overcrowded, with high numbers of people trying to scrape by as ojek drivers or bakso sellers creating too much competition and reducing wages.

“There has to be more formal than informal workers so we can have job security, income security and social security,” said Djimanto, deputy chairman of the Indonesian Employers’ Association (Apindo). “That way we can sort out poverty, which has to be reduced.”

Nevertheless, the small- and micro-sized informal business sector is growing, with Bank Indonesia data showing a 16 percent increase in loans to the SME sector, from Rp 633.9 trillion in 2008 to Rp 737.4 trillion in 2009.

The strength of the sector may help President Susilo Bambang Yudhoyono’s cabinet reach its second-term targets of lowering poverty levels to 8-10 percent, decreasing unemployment to 6 percent and achieving GDP growth of 7 percent by 2014.

But centre for Information and Development Studies economist Umar Juoro is not convinced the targets can be reached. “We haven’t got a step-by-step measure to get delivery,” he said.

Meanwhile, experts are calling for the government to use its strong economic position to address infrastructure problems.

“Indonesia as a whole has many different islands, but from one island to another, the Indonesian economy is not really linked in terms of trading,” Bank Danamon economist Anton Gunawan said. “For example, a product like corn in Gorontalo is cheaper and easier to buy abroad. And in Java, when they need corn it’s cheaper to import it for many reasons, such as expensive transport costs or lack of warehousing or some kind of quarantine system.”

It is less expensive to send a container from Shanghai to Belawan than from Tanjung Priok port to Belawan, said Richard Lino, president director of state-owned port operator PT Pelindo II.

The company is pushing upgrades to Tanjung Priok so it can compete with regional ports in Southeast Asia. The port has collaborated with the customs and excise department to increase its efficiency, and as of April 1 the import gates of Tanjung Priok port are fully automated.

“If we don’t solve this matter, in the long term Java, as the factory of Indonesia, will lose its competitive position,” Richard said. “If the port can be efficient, the ships can be efficient, and logistics cheaper.”

Based on Indonesia’s strong fiscal position, some experts saythe country is ready to make the big leap forward. But to ensure delivery of government targets, aggressive steps towards a better investment climate, improved infrastructure and a stable broad-based society need to be taken.

Von Amsberg said if Indonesia could achieve development that was broad-based and lifted people out of poverty it would contribute to consolidating a stable democratic system