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Watch out for '€˜rent-seeking'€™ firms, VP tells new govt

Vice President Boediono has warned the next government about lobbying by “rent-seeking” firms, which has complicated the mission of policymakers to distribute wealth equally among citizens

Satria Sambijantoro (The Jakarta Post)
Jakarta
Wed, September 24, 2014

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Watch out for '€˜rent-seeking'€™ firms, VP tells new govt

V

ice President Boediono has warned the next government about lobbying by '€œrent-seeking'€ firms, which has complicated the mission of policymakers to distribute wealth equally among citizens.

Many companies in the country did not give back to society because they thought they were still living in '€œthe Wild West'€ era due to the legal impunity they enjoyed, the vice president said on Tuesday.

Some firms opt to lobby the government to get privileges such as subsidies, incentives, grants or tariff protections, which might be less costly than allocating resources to increase productivity '€” a practice commonly known as '€œrent-seeking'€.

'€œThere are certain sectors in the economy that abide by the law, but the laws themselves are still imperfect, giving room for '€˜rent-seeking'€™ practices to mushroom amid legal loopholes,'€ Boediono said in his keynote speech, when opening a seminar discussing Indonesia'€™s widening inequality in Jakarta.

The prevalence of such illicit practices, which may cause inefficiency in the economy, was a byproduct of political system in Indonesia, he argued.

An economist turned politician, Boediono was praised for his role behind Indonesia'€™s robust economic expansion, but he and his economic team were criticized for failing to ensure economic growth was enjoyed equally by all citizens.

Within his five-year tenure as vice president, Indonesia'€™s economic growth averaged 5.9 percent from 2009 through 2013, the third-fastest after China and India in the G20 group of rich economies.

However, the gini coefficient ratio '€”a measurement of income distribution among citizens '€” rose from 0.37 to 0.41 in the corresponding period, an indication of widening inequality among Indonesians as the growth was enjoyed mostly by the rich.

While he is labeled by his critics as a '€œneoliberal'€ and pro-market economist, Boediono presented a socialist argument to solve the issue: That stronger state intervention would be needed to prevent inequality from widening further.

'€œThrough the role of the state, especially its fiscal policy, the inequality [among Indonesians] to tap access for education and health facilities must be eliminated,'€ the vice president said.

Indonesia'€™s income inequality has been on a steady increase since 2000, with the rise being the second-fastest in the Asian region after China, according to the World Bank.

The bank argued that rising inequality in Indonesia was a stark contrast to what its neighbors were experiencing, as Thailand, Vietnam and the Philippines have also enjoyed periods of strong growth with stable or declining income inequality.

World Bank economist Vivi Alatas argued that the government might have to invest more in health care and education, particularly training or research and development, so that it can ensure equal opportunities for the entire workforce.

'€œBeneath the robust economic growth figures, there is inequality between poor and affluent families. Therefore, it is important to strengthen the government'€™s role to fix this issue,'€ she said on Tuesday.

The country has seen widening inequality because there has been a lack of coordination between local and central governments in the design of poverty-reduction programs, according to Ikhsan Modjo, an economic advisor to President Susilo Bambang Yudhoyono'€™s Democratic Party.

'€œThe policymaking process here is very elitist,'€ said Ikhsan, an economist from Airlangga University. '€œIn some cases, local stakeholders were not involved in the discussion, with poverty reduction efforts being a '€˜top-down'€™ process that consequently spawned irrelevant programs for the locals.'€

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