Editorial: Messages from WEF meetings

Even though the meetings within the two-day 20th World Economic Forum (WEF) on East Asia that ended Monday mostly discussed regional and global issues, many of the observations and messages that transpired during the various sessions are quite relevant for guiding Indonesia’s national economic policies.

One of the strongest observations and warnings from the conference is that while the economic globalization process cannot be reversed, short-term thinking, preferences for national solutions and election-cycle pressures may prompt governments to resort to misguided responses and policies.

The recent wave of nationalistic outbursts against the seemingly expanding dominance of foreign investors in Indonesia is an example of short-term and narrow-minded thinking which at the end of the day would only hurt the nation’s best interests.

This signal is frontally against one of the strongest messages from the WEF session on creating jobs and the entrepreneurship equation: That Asian countries, such as Indonesia, that have major technology and skills deficiencies need to woo more foreign manufacturing companies through a package of incentives and policies designed to enhance the transfer of technology and expertise.

The rationale is that foreign companies, forced by need to comply with national policies and international market competition, will contribute to the development of local suppliers and eventually link the country to the global supply chain.

Certainly, national policies and fiscal incentives should be designed in such a way so that investors build up new business models that take into account the needs and demands of underserved and underappreciated groups such as less-trained young people and women in order to generate inclusive economic growth.

Another message that also could serve as a severe warning on Indonesia’s excessive fuel subsidies is that environmental damages, notably climate change, would be the biggest threats to sustainable growth in Asia and Indonesia because that region is so heavily populated.

The WEF meeting on the need for green-footprint for energy concluded that fuel subsidies adversely hinder the development of cleaner, renewable energy and discourage energy conservation and efficiency.

Even Karen Agustiawan, the chief executive officer of state oil company Pertamina, did not hesitate to assert it would rather be futile to develop new technology to produce cleaner, renewable energy as long as fuel is heavily subsidized because there are simply no reliable market price benchmarks or references.

As chief of the state company that is responsible for distributing more than 90 percent of the fuels consumed in the country, Karen should be fully aware that the huge fuel subsidies not only blur price signals, distort consumption and investment decisions on alternative energy, but also encourage inefficient energy consumption, reduce incentives for energy conservation and increase the risk of misuse and export smuggling.

The huge fuel subsidies also violate the principle of good governance, a policy tenet often mentioned during the meeting on the development of public welfare through the United Nations Millennium development goals because those funds could be distributed directly to the poor people through well-targeted social safety net programs.