Soedradjad bemoans economic inefficiency

Soedradjad bemoans economic inefficiency

JAKARTA (JP): Bank Indonesia (the central bank) Governor
Soedradjad Djiwandono said yesterday he was concerned about the
domestic economy's inefficiency.

Soedradjad said high incremental capital output ratios (the
amount of capital needed to generate one unit of output), high
costs and wasteful spending were indicators of economic
inefficiency.

"The latest survey by the World Economic Forum ranks Indonesia
low in its 1996 competitiveness index," he said in a speech when
installing an Association of Indonesian Economists sub-chapter at
Bank Indonesia.

The index ranked Indonesia 30th in terms of competitiveness
among the 49 developed and developing countries surveyed.

"The survey results are another warning to us to launch more
concerted efforts to improve our economic efficiency," he said.

He did not specify suitable incremental capital output ratios,
but most private-sector analysts have put them at more than four.

Economic competitiveness had become more important than ever
because of globalization, he said.

"Higher efficiency is more crucial, especially in Indonesia
where the investment-savings gap is still very wide," he said.

He said the gap had been covered by foreign capital from
loans, foreign direct investment and portfolio investment.

But higher efficiency would let Indonesia reduce its
dependence on foreign capital.

"We have planned to reduce our foreign debt from 57 percent of
the gross domestic product in 1994 to 46 percent in 1999, and
higher efficiency would contribute greatly to debt reduction,"
Soedradjad said.

On the government's policy to face challenges from
globalization, Soedradjad reaffirmed the importance of prudent
macroeconomic management.

"Monetary policy is also always designed to maintain
macroeconomic stability and sustainable high growth," he said.

Soedradjad said monetary and fiscal policies would always be
well coordinated to enhance macroeconomic stability. Good
coordination would help control inflation and the current account
deficit.

"Our anti-inflation measures should develop a strong
perception among the public that expected inflation is about 5
percent and not simply single-digit inflation," he said.

The country has kept annual inflation below 10 percent for the
past eight years, even though rates have been high since 1993.
The inflation rate was 9.77 percent in 1993, 9.24 percent in 1994
and 8.64 percent in 1995.

The inflation rate is expected to be below 7 percent this
year.

He said prudent macroeconomic policies were not enough to
promote high growth.

"Prudent macroeconomic policies should be coupled with sound
microeconomic policies. Hence market players should also be
strong and healthy " he said.

He cited economic policy consistency as a vital component of
prudent macroeconomic management.

"Policy consistency is vital because the effectiveness of both
macro and microeconomic policies depends on the government's
credibility," Soedradjad said.

Soedradjad said monetary policy could be effective in the long
run only if it was supported by a sound, strong financial system.
(vin)