Small, medium-scale firms doing well: Economists

JAKARTA (JP): International economists shared their view here on Tuesday that small and medium-size enterprises (SMEs) have played a central role in Indonesia's nascent economic recovery.

The economists taking part in a panel discussion on Indonesia's economic recovery agreed SMEs have been one of the more resilient components of the economy during the crisis.

"I am sure that Indonesian businesspeople have repatriated some capital here despite the persistently negative market sentiment toward the country," said Wong Yit Fan, Standard Chartered Bank's chief economist for East Asia.

But most of the capital was plowed into SMEs, in line with the negative public's sentiment toward conglomerates, Wong added.

He said most investors now focused on SMEs because the majority of businesspeople preferred to maintain a low profile so as not to attract attention and become the target of the public's animosity for conglomerates.

According to Wong, SMEs are taking a much bigger role in the Indonesian economy, and since banks have not yet resumed commercial lending the liquidity must have been derived from repatriated capital.

"This is a very good development since SMEs provide jobs, they are much more nimble, much more agile and they tap the potentials of the economy much more efficiently than big companies. SMEs cut across all types of industries, largely export oriented," Wong said.

The World Bank's country director for Indonesia, Mark Baird, agreed that the development of SMEs should be a key component of the government's recovery policy in the medium term.

"Moreover, they are a key source of jobs, especially for the poor and the more vulnerable segments of the people," Baird added.

The key issue though is what kind of policies will be implemented to empower SMEs, he added.

Baird also expressed concern over the impact of the decentralization of political and fiscal power to the regions, saying local administrations might introduce regulations that could be inimical to the growth of SMEs.

He suggested the government find new ways to strengthen the banks that serve SMEs. Baird said past credit programs for SMEs, many of which were subsidized, were often too fragmented to be effective and such programs had in fact undermined the banks intermediation function for SMEs.

He stressed the important role the private sector played in developing technical support for SMEs. (bkm/vin)