Thursday, August 27, 2009

Yes, it is sad that our domestic economy is disintegrated. (Mercantilist campaign continues, anyway)

In what seems to be its campaign against everything import, Kompas again runs a headline today with a bombastic lead and heroic tone urging the stop of food import (27/8). They even use (unjustly, to my impression) Faisal Basri's concern about disintegration of domestic economy as their ammunition to call for mercantilism. I've been in close contact with Faisal Basri lately and we both (and many others) are very concerned about the disconnection across regions in Indonesia. Bang Faisal many times illustrates this problem with the fact that it is far easier to go from Palangkaraya to Pontianak (two cities in Kalimantan) via Jakarta (in Java), than directly. In my papers, I put more emphasis on the fact that our logistic costs are one of the highest in the world (14%, cf eg Japanese's 4%). In addition, a study my colleagues and I did in 2008 on land transportation also concludes in the negative: we are very inefficient due to legal and illegal collections on the street, poor infrastructure, and difficult topography. Finally, our ports are lame and have little incentives to improve since under the current, existing system, one port management (Pelindo) who books a loss should not be worried as it will be subsidized by the other Pelindos (the new shipping law addresses this issue with improvement policy but it is yet to be in effect). Add to that the many hurdles in customs. All and all, the big archipelago is really not an integrated economy, it is merely a constellation of many islands and regions with stark differences in prices, and hence standard of living. What is the solution? As I argue here and elsewhere, it requires logistics reform which includes serious improvement (and repair) on infrastructure especially port and road. I was in Kupang last month with my research team. We saw one obsolete weight station whose capacity was only 10 tons. As a response to that, all big, seemingly overload trucks were not allowed to pass through the station -- they were asked to make a small detour around the station. Only smaller trucks are to be weighted. It's funny and saddening. In another occasion, our researcher who rode with a trucker in a nightshift observed how the truck driver threw a matchbox filled with a 10,000 rupiah bill to an empty inspection station. When asked why he did that despite there was no one asking for it, the driver simply said "it's a custom". Again, nonsensical and saddening. All this contributes to our high cost economy. And again, it calls for reform in the logistics.

But Kompas takes all this problem about disintegrated domestic economy as part of their argument to call for import bans. Yes, they cited Faisal Basri as saying that three months ago we should have imported sugar and now it seems too late because suppliers have increased the price. That is probably true. But then they are back to their whole anti-import campaign. This is misleading. It confuses between facts (say, of the crisis) and recipe for longer term economic development. We have been with this problem in logistics and transportation for a long, long time. It needs improvement regardless of the crisis. Yes, we were hit by crisis but happened to be more resilient partly because coincidentally our exposure to trade is relatively low. But the entire world can not step back to relying only on domestic economies. Because at the same time production network and trade-in-tasks are growing. We don't want to miss the train. Nobody wants. But hey those are two different things. The crisis needs a short-term solution, deviating from normal, longer term development (eg. stimulus). This chain of arguments that (a) A crisis hits us, (b) We're fine because we don't trade too much, (c) Therefore the best way to go is to suppress trade even more and to go domestic instead, (d) So, stop import (while export is okay), and (e) While we're going to autarky, we need to address the logistic and infrastructure issue -- is misleading. It mixes up short term problem and longer term solution.

And banning food import? Even if we were all mercantilists now, have we forgotten that our food import is merely USD 5 billion while our non-oil/gas export stand at more than USD 100 billion? Have we forgotten that we are a giant in the world CPO market?

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