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Economy see 'paradoxical growth'

Economists attending a discussion in Bogor on Wednesday to review the country's economic performance over the last five years concluded that Indonesia suffered from a paradox in growth

The Jakarta Post (The Jakarta Post)
Thu, March 6, 2008

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Economy see 'paradoxical growth'

Economists attending a discussion in Bogor on Wednesday to review the country's economic performance over the last five years concluded that Indonesia suffered from a paradox in growth.

International Center for Applied Finance and Economics director Iman Sugema said an excess of liquidity had become the main character of Indonesia's economy.

However, he said, the superfluous funds, which theoretically came from gains generated from trade and services, had not been reflected in a growth in investments.

"Indonesia's success in improving its exports between 2003 and 2007 has not been accompanied by exporters' willingness to invest their surpluses here," he said.

In short, he said, the growth of export value, which benefited from the increases of commodity prices, failed to generate growth in production capacity, particularly in sectors such as agriculture, mining and agro-industries.

Another speaker at the discussion, Aviliani, a widely known economist, said the excess of liquidity also came from gains in portfolio investments.

She warned that if the growth of direct investment in the real sector continue to fail to match the growth of investment in the capital market, which is mostly dominated by foreign funds, it could lead to another economic crisis similar to 1997.

Aviliani said the foreign funds could exit the country anytime.

"If the funds went away before the direct investment level improved, the rupiah rate could be affected very badly."

Aviliani also expressed her belief that most Indonesian exporters were not genuine industrialists.

"They are merely traders. That's why they do not reinvest into the sector which has benefited them," she said.

An expert on the agricultural economy at the University of Lampung, Bustanul Arifin, said the sluggish investment level was also due to the government's failure to transform the high level of public saving into investment.

"The level of saving in Indonesia is around 37 percent, higher than 12 percent in the United States. The problem is how should the government use this high level of saving for improving the investment levels," Bustanul said.

Arif Iman Sunarso from Bogor's agriculture university IPB looked at the economic problems from a different perspective.

He expressed concern with how the economy, despite 6.32 percent growth last year, was still unable to resolve unemployment, which currently stands at more than 37 million people, or around 16.5 percent of the total workforce.

Poverty, he said, also remained high with about 37 million out of the total population of 224 million living beneath the poverty line.

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