WTO urges RI to speed up reform for sake of stability

WTO urges RI to speed up reform for sake of stability

GENEVA (Reuters): Indonesia must accelerate implementation of reforms if it is to stabilize its battered economy next year and return to growth in 2000, the World Trade Organization (WTO) said on Friday.

In a report, the global watchdog praised the government for terminating several monopolies since the onset of Asia's financial crisis and resisting "protectionist pressures".

But competition must be further opened up to remove distortions and restore investors' confidence, according to the review of Indonesia's trade policies written by WTO economists.

Indonesia's gross domestic product is expected to fall by 10 to 15 percent in 1998, it said. The world's fourth most populated country is mired in its worst recession since 1963.

The government of President B.J. Habibie plans reforms to stop anti-competitive practices, including monopolies and other restrictive marketing arrangements that survived the trade liberalization of the 1990s, according to the report.

"This will contribute to a 'leveling of the playing field' across many sectors, creating a more open, competitive marketplace, where few firms will remain protected," it said.

"Full implementation of these reforms, together with Indonesia's WTO commitments, could help Indonesia to stabilize its economy by 1999 and return to economic growth by 2000."

Success will depend on a pick-up in exports, which in turn relies on a stable and open trading system, the report said.

It urged Indonesia's trading partners to resist their own domestic protectionist pressure and remain open to its exports.

Japan is its main trading partner, followed by the European Union and the United States.

WTO's 132 member states debated the 146-page report at a two- day meeting ending on Friday. Indonesia's delegation, in a speech to the talks on Thursday, vowed to continue reforms.

"I would like to reassure you that despite the fact that the medium-term outlook of Indonesia's economy remains uncertain given the severity of the crisis, it will continue to take significant measures to liberalize its trade and investment regimes consistent with its commitments in the WTO," Indonesia's deputy trade envoy, Halida Miljani, told delegates.

Recovery would be "slow and difficult", she added. "Much will depend on whether Indonesia can achieve the necessary political stability for implementing a difficult and complex agenda of economic reforms and whether it will receive necessary financial support from the international community."

The sudden withdrawal of investors from Asian financial markets in mid-1997 was compounded by growing uncertainty about economic, social and political stability in Indonesia, WTO said.

"The result has been a major loss of confidence in Indonesia's immediate prospects of economic recovery."

WTO expressed concern that greater use of tax incentives for investment was encouraging "over-investment in non-competitive sectors". High tariffs continue to protect beverages, motor vehicles, and textiles and clothing, it added.

"The restoration of confidence in the Indonesian economy will also entail the establishment of more rules-based, competition- oriented internal policies.

"While the government has terminated several monopolies since the onset of the crisis, further progress could be achieved in strengthening the competition framework, introducing greater transparency in the attribution of government loans and subsidies, and effectively enforcing existing laws and regulations in the area of government procurement," it added.