Team to curb imports

Team to curb imports

The establishment early this month of the Government Project
Evaluation Team through President Soeharto's Decree No.19/1996
reaffirmed the government's concern about the widening current
account deficit. The team will scrutinize imports for government
and state-company projects, and will direct the procurement of
goods and services to domestic suppliers as much as possible.

The state of the balance of payments has not yet reached the
critical point, as it did in 1983 when the government was forced
to shelve investment projects worth a total of US$21 billion in a
bid to slash imports. Neither does the present situation warrant
the kind of crisis management pursued in 1991 when a commercial
foreign borrowing team was set up to curb the increase in new
loans, and several major projects valued at about $10 billion
were postponed.

Nonetheless, the new team's task -- to prevent the current
account deficit from worsening and to keep the economy from
overheating further -- is just as crucial. The deficit is
estimated to have doubled to almost $8 billion in the current
fiscal year that ends at the beginning of April. Though the
deficit is still less than 3.5 percent of the gross domestic
product, compared to the staggering 6 percent in 1983/1984, the
growth of imports must be curbed before the deficit reaches a
critical point.

The seriousness with which the government is treating the
current account deficit provides the right signal to the business
community, including direct foreign investors and portfolio
investors. The concerted measure will prevent inordinate jitters
about the external balance.

The government is treading a very delicate path. It must
sustain investment levels in the face of import constraints. The
problem, though, is that industrial and infrastructure projects,
notably telecommunications and power endeavors, have high import
content because of a heavy dependence on foreign capital goods
and industrial materials.

The government, however, is confident it can check import
growth without slowing down the pace of investment. Two members
of the team -- State Minister for Development Planning Ginandjar
Kartasasmita and Minister of Finance Mar'ie Muhammad -- hinted
last week that government agencies and state companies often
import goods which could be supplied by domestic producers. The
team will scrutinize project spending and will limit procurements
from foreign suppliers to only goods which are not available in
Indonesia.

Most analysts and businesspeople have welcomed the new measure
because it will help create new market demand for domestic
industrial enterprises, and at the same time help maintain
monetary stability.

A note of caution is warranted, though. Past experience shows
that good policy instruments often turn sour owing to deviations
in their implementation. The government should ensure that the
team does not erect new bureaucratic hurdles and will not
intervene too much with state companies. Any decisions on
rescheduling or sustaining project implementation should be based
on clear-cut, reasonable grounds, and not on the interests of
particular contractors or companies.

The objective of promoting domestic products, and thereby
curbing import growth, should be soberly pursued to support the
healthy growth of domestic industrial firms. Only products that
fulfill the required standards at a reasonable price should be
procured for government and state-company projects.

Most importantly, domestic procurement contracts should be
awarded through competitive bidding, and the bids should be
evaluated in a transparent manner. Transparency is especially
imperative to provide credibility to the new import-curbing
measure. Recent instances of what analysts see as inconsistent
policies skewed for the interests of particular business groups
illustrates that what the government pronounces often differs
widely from what it delivers.