Louise Williams, Jakarta – One of Indonesia's most influential economists has criticised the slowdown in deregulation and warned the Soeharto Government that it must address "collusion" in business to boost the competitiveness of Indonesia's exports.
Professor Sumitro Djojohadikusumo, one of the architects of Indonesia's "New Order" economic success, joined the World Bank in warning that risks lay ahead for the economy despite growth continuing at 7 to 8 per cent a year.
Professor Sumitro criticised, in particular, the slowdown in deregulation of various politically sensitive monopolies following the announcement this week that the next deregulation package would be delayed.
"After 15 years, during which the Government issued a lot of economic deregulations, the Government now appears to be reluctant to carry out new economic reforms," he warned during a seminar in Jakarta.
He said the Government should demonstrate the "political will" to eliminate high cost, monopolistic practices, alluding to preferential access to sectors of the economy for members of the political elite, including President Soeharto's family.
"With the foreign debt reaching $US109 billion [$145 billion] and the current account deficit at $US9.5 billion, it is a foregone conclusion that Indonesia needs to boost its foreign exchange earnings," he said.
Professor Sumitro said further deregulation was essential to enhance exports.
Privately, there has been considerable criticism within business circles of the "hidden costs" in Indonesia, particularly unofficial payments to circumvent red tape, as well as pressure to establish partnerships with politically well-connected local players.
Professor Sumitro's criticism was especially significant given his close ties to the Soeharto family through both his crucial role in early Soeharto cabinets and the marriage of his son, General Prabowo Subianto, to one of President Soeharto's daughter, Siti Hediyanti. Last week the World Bank warned that significant risks lay ahead for the Indonesian economy, citing potentially slower economic growth and deteriorating equity.
The World Bank addressed the politically sensitive issue of favouritism in business and the "hidden costs" of bureaucratic delays and poor contract enforceability.
"Such factors increase uncertainty and risks. They favour the well-connected over the efficient and they inflate costs," the World Bank annual report said.
"They engender cynicism and the perception of unfairness."
The World Bank said deregulation had slowed or had even reversed in some areas, tariff cuts were falling behind schedule and domestic regulations continued to affect both efficiency and inter-island equity.
"Only modest improvements have been made in the complex web of domestic restrictions, fees and levies," the report said.
The World Bank said, however, that overall growth rates remained strong and foreign investment was not impeded.