Sumitro says RI's microeconomics weak
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)