Real sector seen lagging

Urip Hudiono, The Jakarta Post, Jakarta

Indonesia's real sector is still hampered by poor infrastructure and access to financing, resulting in continued slow growth despite stable macroeconomic conditions.

These problems, which had been increasing in severity since the 1997-1998 Asian financial crisis, could not be simply resolved by the central bank's rate cuts and easing of lending rules alone, Bank Indonesia Senior Deputy Governor Miranda S. Goeltom said Wednesday.

She urged all concerned -- the government, legislature and the business community -- to join hands in putting the right policies in place to resolve the problems, and to roll up their sleeves in actually implementing them.

"What we need is a 'total football' strategy," Miranda said during a panel discussion.

"The complexity and gravity of the problems require broader and more integrated structural economic reforms in the infrastructure, labor, legal and institutional sectors so as to improve competitiveness."

Miranda said that the recent macroeconomic stability had not been accompanied by significant growth in the real sector as the economy's supply-side -- made up of the output of businesses and industries -- was being constrained by structural rigidities that hampered its ability to respond to the demand-side, in the form of consumption, exports and investments.

This was shown by BI's latest study comparing the real sector's output with consumer prices.

While before the crisis an output increase would translate into relatively flat rises in prices, Miranda said that the relational curve had since become steeper.

This reflected a growing inability among businesses and industries to increase output, while keeping production costs down, so as to keep pace with the demand. This inflexibility led to higher prices, she said.

The lack of infrastructure and access to financing was further exacerbated by a shift in the post-crisis economy to more technology-intensive industry, rather than labor-intensive industry.

This had resulted in the so-called "paradox" of jobless growth.

"Our study shows that labor force employment in the formal sector has decreased from 81 percent during the pre-crisis period to 11 percent in the post-crisis period," Miranda said.

Indonesian Employers Association (Apindo) chairman Sofyan Wanandi argued that the main problem was the failure to implement existing policies.

"All of these positive macroeconomic figures will be incapable of being sustained if nothing is done. We are sometimes too busy tending to non-economic policies, as well," he said.

Sofyan admitted that the country's manufacturing sector had in the past enjoyed generous government support in the form of fuel and power subsidies, and tariff protection, but times had since changed in the global competition arena.

What the government needed now to do, he said, was to eliminate all remaining structural problems in the economy that resulted in high costs for industry.
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