WB calls for greater RI openness and competition

WB calls for greater RI openness and competition

JAKARTA (JP): The 1996 World Bank report on Indonesia devotes
a special chapter to the issue of transparency and competition
which it says is crucial for improving the quality of growth in
the country's economy.

The report, issued yesterday, says low-quality growth destroys
the environment and overly favors one group, especially if the
gains do not come transparently or competitively,

The chapter on transparency and competition looks at five
dimensions of the quality of growth: land, forestry and water
management, the environment, international and domestic trade,
the financial sector and the privatization of the provision of
infrastructure.

The suggestions made are not new at all as they have often
appeared in previous reports, but as Dennis de Tray, the director
of the World Bank in Indonesia, noted yesterday " You have to be
patient. It is necessary to keep the issues on the table and keep
sharpening your arguments."

The following are some excerpts of the report:

There is a growing perception that although Indonesia's broad-
based growth has raised most incomes substantially, some have
benefited very substantially. Some public actions have reinforced
this perception.

The May 1994 and May 1995 deregulation packages went far in
leveling the playing field for competition in Indonesia but an
unfinished agenda remains. They include the removal of tariff
protection on vehicles, the opening up of the strategic
industries to import competition and the removal of their
domestic subsidies, the removal of export taxes on forest
products and the removal of non-tariff barriers on the
commodities managed by the National Logistics Agency.

Completing the unfinished deregulation agenda is important for
three reasons. By leveling the playing field for competition it
encourages producers to be efficient and it benefits consumers;
investors value predictability and stability most of all,
including a stable policy environment; and subjecting protected
activities to the rigors of competition will improve equity.

The introduction in February of the 20 percent tariff
surcharges on ethylene and propylene produced by PT Chandra Asri
raises the specter that Indonesia is developing a high-cost
petrochemical sector.

The non-transparent and discriminatory manner in which the
import tariff and luxury sales tax breaks were granted in March
to PT Timor Putera Nasional to produce a national car is out of
step with the rule-based approach to trade reform launched in
May, 1995.

The unfinished agenda for removing non-tariff barriers (mostly
for imports) includes: rice, sugar, wheat and soybeans,
wheatflour, milk and dairy products, onion, garlic, cloves,
alcoholic beverages, fertilizer, salt, propylene copolymers,
printed matters, handtools, motor vehicles and motorcycles and
keyboard instruments.

Export restrictions

Export restrictions still cover 2,000 products. Export
restrictions on inputs are ineffective for promoting downstream
industries. They instead lead to resource misallocation from the
under-production of the input, over-production of the processed
goods and from inefficiency in production.

Lack of transparency exists in many of the public and private
deals. The public works ministry chose private operators from
among 20 pre-selected companies for negotiations on 19 toll road
segments; in October, 1995, the Jakarta water supply company
signed a memorandum of understanding to negotiate a 25-year
concession with two large local groups; two power generation
plants with a capacity of 2,450 megawatts at Paiton, East Java
have been awarded to two joint venture companies but neither was
awarded under competitive tender.

The overall success of the privatization process depends
greatly on the extent to which it is transparent and the sales of
assets and the sectors are kept competitive. Lack of competition,
unfair dealing and favoritism can threaten the privatization
process and even the reform program in general.

A transparent, competitive approach to divestiture or sales of
concessions should include, among other things: Prequalifying
potential bidders on the basis of prior experience; Defining up-
front the project/concession simply and clearly and the bidding
process on one or two key parameters, choosing the highest bid
for the sales of assets and the lowest bid for the supply of a
service and announcing the winning bid promptly and avoiding a
second round of re-bidding. (vin)