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High Cost Economy in Indonesia

High Cost Economy in Indonesia and Indonesian Competitiveness Implications12:00 Economics, Essay, Macroeconomics, Microeconomics, Publication No comments This essay was written by Boediono and Dharmesti Wulandari (Publishing and Information Bureau Canopies FEUI 2010) are included in the OPINION 2 and won 2nd Place. Implementation of the ASEAN - China Free Trade Area (ACFTA) can be regarded as an opportunity for the domestic industry to expand into China and Southeast Asia markets. However, this opinion is still doubtful due to the fact that the competitiveness of domestic industries Indonesia is relatively lower when compared with China and ASEAN member countries another. Based on the analysis of the Ministry of Industry, the competitiveness of industrial products and manufacturing Indonesia to ASEAN countries only 15% who have a strong competitive edge and nearly 60% of the products have weak competitiveness. Another case against China the competitiveness of Indonesian products that are strong only 7%, remaining competitive are 29% and 55% weaker. [I]. So, what exactly is the cause of the low competitiveness of Indonesia when compared to China. Mari Elka Pangestu, Minister of Trade, Republic of Indonesia, in an interview has said that competitiveness or competitiveness is determined by many factors, including external and internal factors. [Ii] own external factors closely related to competitiveness and comparative advantages of other countries that became Indonesian competitors. For example, X products made in China that have very cheap prices and huge production scale is difficult to rivaled by Indonesia, making Indonesia the low competitiveness of the product X when compared with China. In addition to external factors, there are also internal factors that determine the competitiveness of the product, especially with regard to domestic factors, including human resources / employment, investment, production costs, and technology. Internal factors that do need improvement and repair via a comprehensive government policy. Low competitiveness of Indonesian products in international trade, which are influenced by internal factors of the domestic economy can be attributed to the high cost or high cost economy that still exist in the national economy. There are several aspects that lead to high cost economy in Indonesia, among other labor problems, problems of credit interest rate / high borrowing costs, bureaucracy / politics is not the least costly, and infrastructure issues. Five aspects will be discussed further to analyze the causes of high cost economy in Indonesia, which impact on the weak competitiveness of domestic products compared with products made in China. Labor Issues. Problems of labor / labor is one of the causes of high cost economy in Indonesia. This also led to the competitiveness of Indonesian children's products made it difficult to compete with similar products made in China. Widjanarko Tjokroadosumarto, Toys Indonesian Employers Association chairman (APMI) revealed differences in the treatment of the workers there, which led to the high cost economy. Workers in China earn better facilities than workers in Indonesia. [Iii] Despite only receiving a salary of $ 100, laborers in China generally do not need to rent a house because the local government worker who rented bungalow is available at a cheap price. Another case with workers in Indonesia are 30% of the salary used for the cost of the contract.

Although labor costs in Indonesia are relatively lower than other ASEAN countries (except Vietnam), the cost to lay off workers in Indonesia is very high especially during the dismissal of employees in large numbers. [Iv] When the issue of the mass layoffs of workers in Indonesia usually do massive demonstrations to demand the severance provision. It is then also contribute to the cause of high cost economy. In addition, the regional minimum wage in urban areas are higher to make the company a lot of building factories and hiring workers in rural areas are lower minimum wage. This would then have implications for the rising cost of transportation and supporting infrastructure expenditure (both of these aspects will be discussed in the next section).Bureaucratic problems. Bureaucracy and political factors believed to be one of the main causes of high cost economy in Indonesia. Bureaucratic costs, both official and unofficial in some areas can reach 20% of the cost of production. The high cost of the bureaucracy will ultimately lead to the price of output produced Indonesia became more expensive when compared with products made in China. Furthermore, the cost of high cost economy due to the bureaucratic costs will also make the cost of Indonesia's exports are higher than its competitors, including China. Bureaucracy problem is aggravated by mental corrupt government officials. To ensure the smooth running of the business and the ease of taking care of licensing, entrepreneurs often have to give bribes to the officials concerned. Given the amount of kickbacks was not a little amount so that the total cost to be incurred to run a business entrepreneur is getting bloated. Interest Rate Credit Problems. Unlike the interest rate in China is relatively low in order to support the growth of their industry, mortgage interest rates are still high in Indonesia. This has implications for the interest rate on the higher costs of loan that must be borne by the company to obtain financing. Furthermore, interest rates People's Business Credit (KUR), which is the most potent source of funding for the SME sector in Indonesia is people lending rates second highest in the world, after Myanmar. [V] As, ideally lending rate which is applied to the development of the sector SMEs should be in the single digits or a maximum level of 10%. In fact, the current interest rate for micro KUR in Indonesia over Rp 20 million for loans down by 22%. Meanwhile, retail KUR interest rates for loans of Rp 20 million to Rp 500 million, amounting to 14%. Meanwhile, lending rates in China and Thailand ranged only at the level of 4-8%. Therefore, industrial products China and Thailand have higher competitiveness than Indonesian products. Infrastructure problems. Infrastructure in Indonesia at present is in a bad state and requires special attention. In the year 1994/1995 damaged roads are still around 109 820 km. However, until 2003, long-damaged roads has reached nearly 170,000 miles. Based on estimates, the need to improve the roads around Rp 6.5 trillion. Sumatra highway that length is 2343.5 km and 1172.2 km in length Pantura level of damage to date has reached 25 percent and 22 percent, and the necessary funds to fix around Rp 5.3 trillion. If these circumstances continue, within the next 10 years of economic lost 40-50 field will reach trillions of dollars. Infrastructure problems in Indonesia is not optimal quality of road infrastructure, as there are many. lane roads damaged in the economy, limited access of the center - the central area of production to marketing, as well as to urban outlets and the existing highway is not optimal support regional development. Declining quality of existing road infrastructure in economic lines, especially in the East Cross northern coast of Java and Sumatra, which caused excessive charge and dimensions, as well as limited maintenance funds. This resulted in vehicle operating

costs and the costs of moving goods become expensive and competitive levels decreased. Basically, the availability of adequate infrastructure is expected to reduce the high cost economy. Infrastructure (particularly road infrastructure and port infrastructure) are inadequate in some provinces may hinder the smooth flow of goods export and transport of goods between regions that require the company to incur additional costs. If this continues, the competitiveness of domestic products was certainly degenerate. Conclusion Urgency to improve Indonesia's competitiveness in the context of international trade is pushing the government to begin to eliminate the causes of high cost economy in Indonesia. As mentioned previously, the aspects causing high cost economy in Indonesia consists of four main issues which need solutions respectively. Government's role is vital in this regard, particularly in relation to the provision of infrastructure and regulation are clearly related to the problem of labor and MSME lending. Revamping and improvement in terms of service bureaucracy should also be prioritized. Bank Indonesia as monetary authorities should also play an active role in ensuring the disbursement of credit to various sectors of the industry with interest rates not too high in order to suppress costs of the loan. [I] Sinaga, P. (2010). Early studies of the ACFTA Policy. Retrieved July 26, 2010, from SMECDA.COM: www.smecda.com / File_ACFTA / kebijakan_acfta_PS.pdf. [Ii] Pangestu, M. E. (2010, August 30). Difficult to Compete with Bulk Product. (Marchelo, Interviewer) taken from Media Indonesia newspaper. [Iii] Karina, S. (2010, 4 21). Indonesian toy hard in the Chinese market. Picked 12 2, 2010, from Okezone.com: [Iv] Gross, A., & Connor, A. (2009, 3). Indonesia in the Global Financial Crisis: What HR. Managers Need to Know. Picked 12 2, 2010, from http://www.pacificbridge.com/publication.asp?id=127. [V] Microcredit Interest Rates Top Second in the World. (2010, 10 19). Picked 12 2, 2010, from Bataviase.co.id:http://bataviase.co.id/node/424865