Transformation of economic system needs a boost

Transformation of economic system needs a boost

JAKARTA (JP): The transformation of Indonesia's economic
structure, which has generated a 6.9 percent average growth rate
over the past three decades, has not been followed by a sound
transformation of its economic system, an economist says.

Sjahrir, a lecturer at University of Indonesia's School of
Economics, told a one-day seminar yesterday that the country's
rapid economic growth has so far been unable to guarantee a high
level of efficiency, at either the micro or the macro economic
level.

"The impressive growth of Asia's economy, including Indonesia,
which is sometimes dubbed 'miraculous', has mostly been the
result of enormous investments in capital, human resources and
economic assets," he said, quoting the observation of leading
economist Paul Krugman.

"But it has not been the result of improved efficiency. The
biggest question we are facing now is whether we can continue to
transform the country's economic structure and, concurrently,
boost the efficiency of the economic system," Sjahrir said.

The seminar, which discussed finance and banking in Indonesia,
was opened by Bank Indonesia Governor Soedradjad Djiwandono. It
also featured economists Dorodjatun Kuntjoro-Jakti, Marzuki Usman
and Rijanto Sastroatmodjo as panelists.

Sjahrir said that Indonesia exercise caution in relation to
the process of globalization, which implies not only the free
flow of goods and services but also the free flow of capital.

"It is very important for Indonesia, which has a free foreign
exchange regime, to closely watch the shifts in the world's
capital flows," he said.

Speaking of the international currency market, which currently
has a daily turnover of up to US$1.3 trillion, Sjahrir said the
rupiah should not be over-valued if the government cannot control
inflation.

"Can we, amid the world's rapid changes, reduce the
discrepancy between our inflation rate and the depreciation rate
of the rupiah against the American dollar?" he asked.

If Indonesia is unable to narrow this gap, he said, it will
become harder in the future to keep the rupiah at a stable level.

To keep the rupiah stable, he said, "domestic interest rates
have to be kept at high levels. That means that capital inflows
will mostly consist, not of productive investments, but of
speculative funds which are short term."

Sjahrir said that Indonesia's increasingly open economy should
be matched by an opening up of the society in general, such as by
allowing more democracy and freedom.

Government policies should consist, not only of those in favor
of a more liberal economy, but also those which encourage
economic justice and narrow the economic gap in society, he said.

Sjahrir criticized some of the government's policies as being
'anti-market'. Those policies, which the economist said were
introduced to benefit particular interests, were distorting the
market mechanism, he said.

Meanwhile, Dorodjatun, the dean of the University of
Indonesia's School of Economics, said that in the coming years
the government should continue to open up the country's economy
through further deregulation to attract investment and increase
the proportion of foreign ownership in listed companies.

"I think Indonesia should gradually allow for an increase in
foreign ownership in listed companies from the present level of
49 percent to 55, 60 and more," he said. (pwn)