RI needs better business climate, labour inputs for growth - OECD
Paris (ANTARA News) - Indonesia needs to improve the business environment and make better use of labour inputs to put the economy on a higher growth trajectory, the Organisation of Economic Cooperation and Development (OECD) said.
In its economic assessment of the country, the OECD said raising Indonesia's growth potential and sustaining it over the longer term is the nation's foremost policy challenge, as the current level of growth is insufficient to reduce poverty and unemployment.
"The country's income gap relative to the OECD is sizeable, and several years of sustained growth will be needed to eliminate it," the agency was quoted by Thomson Financial in its report.
Economic performance though improved markedly over the last few years and the momentum is expected to be maintained in 2008-09, with GDP growth likely exceeding 6 percent per year.
The OECD said concerted efforts are required in several areas, especially if the goals set out in Vision 2030 - an initiative by a group of independent experts to achieve high growth - are to be fulfilled. The report listed a number of policy options for improving business climate and to make better use of labour inputs to enhance economic efficiency.
The report called for further reduction in subsidies, particularly that of fuel prices, which takes a lion's share of the total subsidies. Subsidies are expected to make up about 20 percent of central government expenditure in 2008.
It advised the central bank to react preemptively by tightening the monetary policy stance, should the outlook for inflation and expectations deteriorate further. Headline inflation and expectations have risen and are now well above the ceiling of the target range of 4-6 percent for 2008, it
noted.
The announcement of gradually decreasing targets for the coming years, from 4-6 percent in 2008 to 3-5 percent over the medium term, is therefore a welcome signal of commitment to inflation convergence, which will require a sustained effort to achieve those targets, the OECD pointed out.
It also said the private sector can play a prominent role in the growth process, so long as the business climate can be improved considerably.
"Economic and regulatory uncertainty, deficiencies in law enforcement and infrastructure bottlenecks are among the main barriers to entrepreneurship," the report said.
Moreover, Indonesia's ranking in international indicators of perceived corruption suggests that there is significant room for improvement in that area too.
Greater flexibility in employment protection legislation would also make for a better use of labour inputs, the agency said. This would help labour-intensive manufacturing sectors such as textiles, clothing and footwear, which were impacted by a tightening of the labour legislation, it added.(*)
In its economic assessment of the country, the OECD said raising Indonesia's growth potential and sustaining it over the longer term is the nation's foremost policy challenge, as the current level of growth is insufficient to reduce poverty and unemployment.
"The country's income gap relative to the OECD is sizeable, and several years of sustained growth will be needed to eliminate it," the agency was quoted by Thomson Financial in its report.
Economic performance though improved markedly over the last few years and the momentum is expected to be maintained in 2008-09, with GDP growth likely exceeding 6 percent per year.
The OECD said concerted efforts are required in several areas, especially if the goals set out in Vision 2030 - an initiative by a group of independent experts to achieve high growth - are to be fulfilled. The report listed a number of policy options for improving business climate and to make better use of labour inputs to enhance economic efficiency.
The report called for further reduction in subsidies, particularly that of fuel prices, which takes a lion's share of the total subsidies. Subsidies are expected to make up about 20 percent of central government expenditure in 2008.
It advised the central bank to react preemptively by tightening the monetary policy stance, should the outlook for inflation and expectations deteriorate further. Headline inflation and expectations have risen and are now well above the ceiling of the target range of 4-6 percent for 2008, it
noted.
The announcement of gradually decreasing targets for the coming years, from 4-6 percent in 2008 to 3-5 percent over the medium term, is therefore a welcome signal of commitment to inflation convergence, which will require a sustained effort to achieve those targets, the OECD pointed out.
It also said the private sector can play a prominent role in the growth process, so long as the business climate can be improved considerably.
"Economic and regulatory uncertainty, deficiencies in law enforcement and infrastructure bottlenecks are among the main barriers to entrepreneurship," the report said.
Moreover, Indonesia's ranking in international indicators of perceived corruption suggests that there is significant room for improvement in that area too.
Greater flexibility in employment protection legislation would also make for a better use of labour inputs, the agency said. This would help labour-intensive manufacturing sectors such as textiles, clothing and footwear, which were impacted by a tightening of the labour legislation, it added.(*)