RI needs to shift gear to high-growth path

Fitri Wulandari, The Jakarta Post, Jakarta

Indonesia needs to aim for higher growth in the coming years to regain its lost momentum in development and to keep the country united, said economist Djisman Simanjuntak.

Djisman said on Monday that most of the economic indicators -- inflation, interest rates and the rupiah -- showed that the country was on the right track, but it must grow at 8 percent or higher, as China did for the past two decades.

"A growth rate of 3 to 4 percent a year for an extended period is simply inadequate to keep the already strained republic united," Djisman said in his luncheon speech at the economic development strategy seminar hosted by The Jakarta Post.

"If the vision is to return to a high-growth path as soon as possible, and if its success requires an anchor of stability in the likely chaotic environment of the 2004 election year, maintaining the IMF program for another year or two should seriously be considered," he said.

If it is difficult to maintain the IMF's role in its current capacity, Djisman said the government could devise a new post- program monitoring role for the IMF.

Djisman acknowledged that a high economic growth was not a panacea for all the problems that have afflicted Indonesia since before the crisis.

"In its absence, however," he warned, "the very existence of a poor nation is put to a serious test."

With the momentum of development lost, he said the glue that held together the "imagined community" of Indonesia had been thinned.

Djisman said the crisis had made Indonesia's economy much weaker than it had been before 1997, which provided all the more reason for a need to shift to a faster growth track.

While the total gross domestic product (GDP) has yet to return to the 1997 level, the population has risen by 15 million people, or 15 percent, since then, giving rise to severe unemployment issues.

Indonesia is also slowly disappearing from the investment map, as its investment market is steadily shrinking. In the 1997-2002 period, annual approvals of domestic investment fell 21 percent and foreign direct investment fell 29 percent.

"Indonesia is shrinking into a 'trade dwarf', suffering from a level of exports that has hardly changed in six years and a level of imports that has shrank by almost a third," Djisman said.

He said the recipe for shifting gears up to a faster track was to change the current economic architecture of state capitalism to an open economy; in other words, to open up to globalization.

The next step was to change into a market economy by, among other things, privatizing ineffective, corruption-ridden, state- owned enterprises (SOEs).

"Stripping the state of a large chunk of its business ownership is perhaps a necessary condition for a successful fight against corruption, the central government's possessiveness toward its lower tiers and other symptoms of bad governance," he added.

Djisman added that Indonesia needed to focus on good regulatory measures rather than ownership of businesses, on social capital than economic types of capital, and on tax revenue instead of property and investment income.

Lastly, the new economic architecture must include an adequate, built-in social protection system that levies positive taxes on wealthy citizens and provides a free-tax facility for the poor.

"Social insurance is needed to enable underprivileged citizens to cultivate a sense of ownership in the development process," he said.

Businesspeople, Djisman added, must be encouraged to invest in "non-zero" interactions, such as support learning facilities and pre-competitive research.

In order to make the changes work, Djisman stressed the need to comply with the principles of good governance, because "It allows the existing system to work better and to deliver prosperity at a higher pace and a better distribution."

"Under a much better system of law enforcement against corrupt and collusive practices in politics and business, including banking and civil societies, Indonesia might have catapulted itself ahead of the rest of developing Asia," he concluded.