RI needs to shift gear to high-growth path

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.