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)