Reform of industrial structure urged

Reform of industrial structure urged

MEDAN, North Sumatra (JP): Economists suggested here yesterday
that deregulation measures are essential but not enough to
improve the efficiency and, consequently, competitiveness of
Indonesia's manufacturing industry.

Rizal Ramli told the second-day meeting of the 13th Congress
of the Indonesian Economists Association that the industrial
structure should also be reformed from an oligopolistic one to a
structure that allows for more competition.

"Our manufacturing industry has been concentrated too heavily
in the hands of a few groups, thereby allowing for monopolistic
and oligopolistic practices," Rizal, a director of the Jakarta-
based Econit research institute, pointed out.

Arief Ramelan Karseno, an economist from the Yogyakarta-based
Gadjah Mada University, blamed the inefficiency of the industry
partly on the extreme involvement of the government in the kinds
of manufacturing operations that should be left to the private
sector.

"The government's involvement in manufacturing, which should
be more open to competition, has resulted in the virtual neglect
of heavy industry where the government should play the leading
role as the catalyst," Karseno noted.

"No wonder our industry remains dependent mainly on imported
capital goods," Karseno noted.

Rizal compared Indonesia's manufacturing industries with those
of other countries and showed that Indonesia lags far behind such
countries as Thailand, Malaysia, South Korea and Taiwan.

Rizal's comparison of manufacturing industries used output,
contribution to gross domestic product, the depth of the
industrial structure, the value added per unit of output and
industrial export per capita as the main indicators.

"The comparison shows that Indonesia lags far behind," he
pointed out.

Indonesia's manufacturing industry, according to him, also
performed poorly with regard to the ability to absorb surplus
labor from the agricultural sector.

"This problem, I think, was caused by the high capital
intensity of our manufacturing industry and the lack of economic
linkages between the big and medium and small-scale industrial
enterprises," he said.

He cited two disadvantages of the economic linkages between
big companies and medium and small-scale enterprises.

The first is the inability of the industry to absorb a large
number of the surplus labor from the agricultural sector because
it is the medium and small-scale enterprises that are labor
intensive.

The second negative impact is that the manufacturing industry
has remained largely dependent on imported basic and intermediate
materials.

Rizal blamed Indonesia's poor industrial performance on its
slowness in reorienting its manufacturing operations from import
substitution to export orientation.

"While such countries as South Korea, Thailand, Malaysia and
Taiwan reoriented their industries to the export market from the
mid-1970s, Indonesia started reorientation only in the mid-
1980s," he pointed out.

Moreover, according to Rizal, the process of Indonesia's
decision-making in economic policies has often been on an ad hoc
basis and is often restricted by vested interests or by what he
called decision-making within bounded rationality.

He cited the high portion of invisible costs in the cost
structure of manufacturing industries and the high concentration
in the ownership of industries as other barriers to improve the
efficiency of the manufacturing sector.

"According to my study, invisible costs such as illegal levies
account for as high as 14 percent of the total cost," he added.

He said the high concentration of industrial ownership enables
the existing industrial groups to erect barriers to entry,
thereby leading to monopolistic and oligopolistic practices.

"This problem cannot be touched by tariff deregulation alone
but should also be tackled through a reform of the ownership
structure to allow for more competition," Rizal said. (vin)