NPM : 11209920
Kelas : 1EA21 ( Kelas Pengulangan )
High Cost Economy
in Indonesia and Indonesian Competitiveness Implications
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 argument is questionable because in reality the competitiveness
of Indonesian domestic industry is still 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.
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. Own external factors closely related to competitiveness and comparative
advantages of other countries who became Indonesia’s 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. These internal factors that require 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 Indonesia 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. Despite only
receiving a salary of $ 100, labor in China is generally not necessary to rent housing for local government workers 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. When the issue of the mass layoffs
of workers in Indonesia are usually 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. Meanwhile,
interest rates are ideally designed for the development of the SME sector
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. Land 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 will also likely
further decline.
