THE HIGH COST ECONOMY IN INDONESIA

THE HIGH COST ECONOMY IN INDONESIA

The high cost economy still exist in Indonesia. First, we have to define the economics costs. Economic cost is the sacrifice involved in performing an activity, or following a decision or course of action. Low competitiveness of Indoneisan products in international trade, which are influenced by internal factors of domestic economy can be attributed to high cost economy. There are several aspects that lead to high cost economy in Indonesia, among other labor problems, bureaucracy and politics, problems of credit interest rate (high borrowing cost),and infrastructure issues.

Problem of labor is one of the causes of high cost economy in Indonesia. This also led to the competitiveness of products made in Indonesia is lower than another countries. Although labor costs in Indonesia are relatively lower than ASEAN countries, the cost to lay off workers in Indonesia is very high especially during the dismissal employees in large numbers. The regional minimum wage in urban areas are higher to make the company a lot of building factories and hiring workers in rural areas which are lower minimum wage. This would then have implications for the rising cost of transportation and supporting infrastructure expenditure.

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 product produced in Indonesia became more expensive when compared with product made in another countries. Bureaucracy problem is aggravated by mantal 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.

Interest rate are still high in Indonesia. This has implications for the interest rate on the higher costs of loan that mus be borne by the company to obtain financing. Therefore, industrial products of Indonesia heve lower competitiveness than another countries.

Infrastructure problems in Indonesia is not optimal quality of road infrastructur. Limited access of the central area of production as well as to urban outlets and the existing highway is not optimal support regional ddevelopment. Declining quality of existing road infrastructure in economic lines, which caused excessive charge and dimensions. This resulted in vehicle operating costs and the costs of moving goods become more expensive and competitive level decreased. Basically, the availability of adequate infrastructure is expected to reduce the high cost economy.

Finally, the urgency to improve Indonesia’s competitiveness is pushing government to eliminate the causes of high cost economy in Indonesia. Government’s role is vital, particularly in relation to the provision of infrastructure and regulation are clearly related to the problem of labor and interest rate. Revamping and improvement in terms of service bureaucracy should also be prioritized.