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.