Reforms won't address regional gap

MANADO, N. Sulawesi (JP): Deregulation measures alone will not effectively address the development disparity between Indonesia's eastern and western regions, economists said here yesterday.

The eastern region simply does not have sufficient preconditions for growth and is therefore not able to benefit from the market mechanism, analysts gathered at the 8th meeting of the Association of Indonesian Economists noted.

"Deregulation is necessary but not a sufficient condition to stimulate economic development in the eastern provinces," said Lucky Sondakh, professor of economics at the local Sam Ratulangi University.

Mangara Tambunan, Managing Director of the Center for Economic and Social Studies in Bogor, West Java, concurred that market forces wouldn't stop the disparity.

"I'm even afraid that if the present system of infrastructure financing is maintained the regional disparity will become wider," added Rizal Ramli, director of the Econit economic research center in Jakarta.

Rizal saw infrastructure development as one precondition to stimulate economic activities in the eastern region of Sulawesi, Nusa Tenggara, Maluku and Irian Jaya.

He reckoned the central government should accelerate infrastructure development with public financing.

"State intervention is required at the early stage of development in a region," he pointed out.

Sondakh observed that North Sulawesi, for example, is the closest province to the Pacific region.

"But how could this province tap the market opportunities to be created by the free trade within the Asia Pacific Economic Cooperation forum in the year 2010 if its economy remains the least developed," Sondakh contended.

The eastern region will benefit from deregulation only if it is coupled with the decentralization of economic decision making and bureaucratic reform, Sondakh contended.

Conducive

But he wondered whether the political environment is conducive to such reforms because decentralization means sharing power.

Improving economic competitiveness and efficiency in the eastern region is not therefore entirely an economic problem.

Sondakh is afraid that if decentralization is not implemented and licensing procedures are not further simplified, the process of transfers of surpluses from the eastern to Java and Sumatra will continue.

"We are not asking for assistance but for justice in return for what our region had contributed to the western provinces over the past 25 years," noted Jusuf Kalla, Chairman of the South Sulawesi Chamber of Commerce and Industry.

Kalla recounted that in the early 1970s when the government started industrial development in Java, most primary commodities in the eastern region such as coconuts, timber, nutmeg, fish and rattan were subjected to regulated trade to secure cheap input for industrial firms in Java.

"As the prices of their primary commodities were controlled the income of the people in the eastern region was virtually capped," Kalla pointed out.

Since the eastern region lags far behind the western region the government is obligated to help accelerate the development of the eastern islands, he said.

"We are only asking for what we sacrificed a long time ago," Kalla said, warning that the wide disparity between the eastern and western regions could become a source of political instability.

Tambunan suggested the central government design a special development policy for the eastern region because its economic problems are structural in nature.

"Our development planners should undergo a mental switch to fully understand that the economic condition and resource endowments in the eastern provinces are different from those in the western region," Rizal pointed out.

The government, according to him, should realize that policy instruments effective for high-growth provinces are not automatically effective for low-income and low-growth areas.

The different approaches should, for example, be reflected in resource allocation policy, Rizal argued.(vin)