Sumitro says RI's microeconomics weak

JAKARTA (JP): Indonesia's most senior economist, Sumitro Djojohadikusumo, said yesterday the country's sound macroeconomics had not been supported by similarly healthy microeconomics.

"Our microeconomics has illnesses in the forms of market distortions such as monopoly, oligopoly, cartels, overprotection and subsidies on certain items," Sumitro told a meeting of the Civil Servants Cooperatives Organization.

The distortions increased production costs and caused inefficiency in the economy, he said.

"Sooner or later there would be a short circuit in the economy," he said, saying the rupiah's sharp drop against the dollar resulted from weak microeconomics.

The currency storm, which saw the rupiah drop more than 35 percent against the U.S. dollar, caused a sharp increase in private firms' short-term offshore loans.

Sumitro said the high amount of matured offshore loans had led to an increase in the demand for U.S. dollars at home, which in turn caused the faster depreciation of the rupiah.

Distortions

Unless the market distortions were eliminated, there would not be sustainable progress, he said.

Sumitro said the government's July deregulation and November reform package were useful and could help the economic situation return to normal. The packages, however, must be followed up with other measures, he said.

The July deregulation package slashed the tariffs of certain export commodities, while November's reform package lifted the State Logistics Agency's intervention on the distribution of some staple commodities, among other things.

The two packages must be implemented consistently to make structural adjustments, he said. This would help smoothen the flow of products, production process, trade and transportation, and would reduce inflation, he said.

Deregulation would also improve efficiency and make the balance of payments positive, he said.

Structural adjustments and improved efficiency would boost Indonesia's exports and make the economy less dependent on offshore loans.

However, he said vested interest groups always tried to slow down deregulation efforts.

"To speed up the process of deregulation, such as elimination of monopolistic practices, there must be strong political will from both the central and the local government," he said.

Sumitro believed the economy would return to normal within the next two years if both the July and November economic measures were consistently implemented.

With such a scenario, Indonesia's economic growth would be able to reach 7 percent within the next three years.

Analysts predict that the government's tight monetary measures and cutback policy to cope with the currency crisis would slash economic growth to between 5 percent and 6 percent this year and to about 5 percent next year. (das)