Service sector needs serious attention: Marzuki

JAKARTA (JP): Facing the 21st century, Indonesia should modify its service sector to create more employment and reduce the country's huge deficits in the sector, an expert said here yesterday.

Marzuki Usman, chairman of the Indonesian Economists Association, told a seminar organized by Jakarta-based Pancasila University that Indonesia is being challenged to protect and nurture its service industry, while at the same time join multilateral efforts to liberalize the sector.

"The first challenge is how to create an economic transformation process... especially from an agricultural-based production structure to industrial-based, and eventually a service-based structure," he said.

Marzuki, who is also an expert assistant to the minister of finance, noted that the service sector has helped improve the welfare of Indonesians through employment opportunities in the sector.

He said that in 1991, 31 percent of Indonesia's workforce earned a living from the service sector. In urban areas, the percentage was much higher, and almost equal to that in developed countries. In the United States, 71 percent of the workforce worked in the service sector in 1991.

In terms of Indonesia's current account, the service sector has been blamed for the continuing and widening account deficits, which reached almost US$7 billion in the 1995/1996 fiscal year. In the service sector alone, Indonesia suffered more than a $10 billion deficit.

Indonesia has so far covered its current account deficit mostly with funds from capital inflows, including those from offshore loans, foreign direct investment and portfolio investment.

State Minister of National Development Planning Ginandjar Kartasasmita warned at the seminar that Indonesia will no longer be entitled to soft loans from multilateral lending institutions, considering it will be categorreed as a newly industrialized country.

Therefore, Ginandjar said, the most important tasks for the country are how to boost exports to earn more foreign exchange and reduce its deficits, especially in services.

Marzuki noted that the main short-term challenge for the government is how to create a services-liberalization policy package which can reduce the country's deficits in the service sector.

"The problem then becomes more complex when we are confronted with a free trade tendency, including that in the service sector," Marzuki said.

Multilateral efforts toward free trade in services is currently pursued through the General Agreement on Trade in Services (GATS), negotiations of which are underway.

As negotiations on trade in services are underway and relatively new, compared with those on trade in goods, Indonesia can still protect its service industry.

In GATS, Indonesia is so far committed to liberalizing -- to a certain extent -- a number of services in five subsectors: telecommunications, industrial services, tourism, financial services and transportation.

Developed countries, which have reached an advanced stage in the service sector, have been pressuring developing countries, including Indonesia, to give more commitments.

"As our service sector is still weak, considering our huge deficit in the sector, the existence of GATS serves as a warning to our service industry," Marzuki said.

The next challenge for the country is how to produce high- quality service workers as the competitiveness of the service industry lies mostly on human resources, he added.

Supporting Marzuki's view, Indonesian Engineers Association Chairman Arifin Panigoro noted that Indonesia needs to create and empower local professionals to compete with foreign professionals who dominate various service subsectors.

"The empowerment of our professional society is a key factor to improve our national competitiveness," Arifin told the seminar.

He noted that to create and empower qualified professionals, the country needs to further nurture and create more universities and other high education institutions, research and development centers, high-tech information centers and professional communication forums. (rid)