Regional Development Policy
for Eastern Indonesia
 
 

East Indonesia Development Background
 
National Development Policy Guidelines 1993 states the needs to synchronize interregional development growth and to encourage regional autonomy within the context of national points of view (wawasan nusantara). The implication of the policy is that regional development policy is not only implemented by giving compensation of financial allocation to the less-developed region such as East Indonesia's provinces, but more focussed to enhance a self-sustained development approach in each province/region to manage and develop their own development potential sources for the sake of regional development and national development, in general.

In the first long-term national development period (PJP I), interregional economic development shows a tendency that in general Java's provinces grew more rapidly than outer Java's provinces. The issue of regional disparity consists of inequality of interregional development welfare and growth, in particular between Java and outer Java, west Indonesia and east Indonesia, and between rural and urban area. Besides those imbalances, there are many less-developed regions still exist, such as isolated, minus and critical regions, and state-border areas.
 

Eastern Indonesia Development Issues: The First-five years Development

The progress of economic development in East Indonesia can be seen from the achievement average GRDP growth in the last two Pelita ( Five Year Development Planning) that is 7,83% in which Kalimantan reached an average growth of 9,41% while Sulawesi and Eastern Islands grew by 6,46% and 7,22% respectively .

The development of social welfare index in East Indonesia during the first twenty-five years indicates an increasing rate of social welfare as measured by (a) increase in literacy rate from 70,4% (1976) to 81,3% (1990), (b) decrease in infant mortality from 116 (1971) to 78 (1990), and (c) increase in life expectancy from 45 years (1971) to 58 years (1990).

The rate of population growth increased significantly, with the share of East Indonesia's population rose from 18,7% (1971) to 19,7% (1990) of the total population of Indonesia. This is because of the high rate of population growth, which is 2,44% between 1971-1990 as well as the growth in urban areas (5,31%) for the same period .

The increase in central government allocations for regional development (Inpres) recorded at Rp9,6 trillion with increasing trends from Pelita to Pelita during the PJP I. Inpres allocation in Pelita V increased 2,8 times compared to Pelita IV. Sectoral DIP allocations for the last two Pelita in East Indonesia reached more than Rp14 trillion. In Pelita IV and Pelita V, the sectoral DIP allocations was Rp6 billion and Rp8,3 trillion respectively although that was still far below the allocation for West Indonesia .

The perfomance of infrastructure development during the first twenty-five years also improved subtantially, from 28.669 km length of roads in 1971 to 103.718 km in 1989 accompanied by an increase in road density from 21,5 km to 77,9 km per 1.000 km2. Other infrastructures such as ports, airports, telecomunications and electricity are also increased. Again, the increase is still incomparable to the western counterpart.
 

Development Constraints in East Indonesia

Most of the regions in East Indonesia have an inherent disadvantages especially in terms of geographical coverage, isolations, physical and climate conditions, i.e. arid and dry, and a relatively sparse and uneven distribution of population.

Generally, regions in East Indonesia are relatively behind compared to other regions especially in the availability of physical infrastructures including social and economic infrastructures.

The general welfare index, which is a combined index to measure both social and economic welfare, have shown a relatively low score for East Indonesia compared to the other regions.

The economic structure of the region is inadequate and still rely heavily on agriculture with its share to GRDP of East Indonesia more than 35% and mining contributed 2,1%. The share of East Indonesia's GRDP to the national GDP is only around 17%. The share of exports from East Indonesia accounted for 24% of total national exports. The share of exports fell from year to year as reflected from the perfomance of East Indonesia's non-oil and gas exports from 36% in 1977 to 24% in 1990.

The rate of poverty is still high as 7.693 villages out of 20.633 villages (or 41,4%) still living below poverty lines. That number is relatively high compared to national average of 31,5%. Furthermore, in several provinces, the number of poor villages is very high such as in Irian Jaya (77,5%), Timor Timur (70,6%), Kalimantan Tengah (56,5%) and Maluku (53,9%).

The average education level in East Indonesia is relatively low. Although the number of school increased significantly from Pelita to Pelita, the enrollment ratio of East Indonesia is still below the national average. As of 1992, the enrollment ratio for elementary school in East Indonesia was 106,8%, which was slightly lower than the national enrollment ratio of 107,5%.

 
East Indonesia Development Potential
 
Eastern Indonesia is a rich region, which can be seen as follows:

  1. Rich of natural resources, particularly mines, forest, and maritime resources, and various unique ecosystems.
  2. Although irrespective the limited investment in infrastructure, it has been able in attracting private investment in developing East Indonesia provinces.
  3. Various development potentials have not been explored economically both by public and private investment; i.e maritime tourism, ecotourism, biodiversity, unique arts and cultures.
  4. Many development projects invested in East Indonesia show obviously successful results; i.e mining industries in Tembagapura (Irian Jaya), Soroako (South Sulawesi), oil in Sorong (Irian Jaya), plywood in Ternate (Maluku), and shrimp export factory in Ujung Pandang (South Sulawesi).
  Basic Policies in the Development of East Indonesia
  1. Improving the quality of human resources in the human development's efforts must be given high priority, and economic development is essential to meet the stated objectives.
  2. Economic development must be targeted to alleviate poverty and increase people's living standards and welfare.
  3. The development of East Indonesia is designed to preserve local characteristics including its culture and traditions.
  4. The development of East Indonesia must be addressed in line with the principle of sustainable development which also concerned with environmental issues.
  5. The development of East Indonesia will not be successful without sufficient local's participation in planning, implementing and financing regional development programs especially in encouraging private sector to involve more actively.
  6. Accessibility is a crucial component in developing East Indonesia. The transportation and telecommunication network that serve the areas must be enhanced in order to free the area from isolation and reduce the costs of production and consumption of goods and services.
 
Strategies in Developing East Indonesia
  1. Development strategies at micro level consists of two phases:

    2. Phase 1, Fulfilling the basic needs of the regions with focus on increasing productivity of the human resources.
    Phase 2, (a) Identifying the priority of each development sectors, and (b) to diversify and strengthen the regional economic base with export potentials.
     

  2. Development strategies at regional level which already considered factors that affect macro economic efficiency and spatial distribution of development activities and benefits which consist of two parts :

    3.      
  3. Development strategies at macro level which consist of four parts:
  • Developing intra and interregional transportation system as part of national transportation system by:
  • Development of natural resources and preservation of environment to ensure sustainability of development with attentions to environment:
  • Increasing private sector's participation plays a vital role in the development of eastern parts of Indonesia. However, basic infrastructures still have to be provided by the central government. Also the encouragement of the private sector to participate actively in the development activities in the regions.
  • Institutional strengthening and human resources development :
  • It is also considered that the development of East Indonesia could also benefit from the stimulus of the international and sub-regional economic coorperation, such as BIMP-EAGA (Brunei, Indonesia, Malaysia, Philippines East ASEAN Growth Area) and AIDA (Australia Indonesia Growth Area) involving all provinces in East Indonesia.
    •       

    Development Investment for East Indonesia in Repelita VI

    The figure of regional investment distribution in 1983-1990 period shows that development investment in East Indonesia is still much lower than in west Indonesia region, i.e., public investment (28.5%) as well as private investment (8.4%). However, the tendency shows increasing form the previous period, i.e., 23.9% for public investment and 7.7% for private one. According to the regional development scenario in Repelita VI, it needs to enhance public investment growth from Inpres and sectoral DIPs for outer Java's provinces. The implication to east Indonesia region at the end of Repelita VI is that the public investment will increase its sharing from 26% in 1993 to be 27.6% in 1998. At the end of PJP II, the proportion of public investment in east Indonesia region will increase to be approximately 30%.

    The development scenario for accelerating regional development growth in less-developed regions show a reorientation for the development in the outer Java's region. As a result, it will shows that private investment portion in Java will be decreased from 73.6% at the beginning of Repelita VI to about 71.7% at the end of Repelita VI, while in east Indonesia region will be increased from 11.4% to 12.6% at the same period.

    Another implication will be occurred by the reorientation of non-oil and gas export. National macro economic development growth tells that export growth will still be depended to Java's provinces. By introducing reorientation of public and private investment to outer Java's provinces, it is estimated that the export performance in east Indonesia region will be greater that average national export growth, which is 12.7%.
     

    Constraints and Challenges in East Indonesia Development

    In general, the problems faced by the government to develop east Indonesia region are as follows: (I) lack of physical infrastructures (social and economics); (ii) lack of human resource (in quality and quantity as well); (iii) geographically huge areas, scattered and relatively far and isolated from national centers; (iv) lack of local government and institutional capability; (v) weak regional economic structure and low contribution for national economic development; and (vi) slow regional development growth and low quality of labor.

    Within the region itself, the issue of disparity also can be seen, such as disparity in development infrastructure availability, i.e., between more-developed provinces such as East and West Kalimantan, North and South Sulawesi. However, in general, the availability and the reliability of infrastructures in East Indonesia are still needs to be developed and improved, such as transportation networks, telecommunication, and electricity.

    In order to reduce the imbalance of development and enhancing east Indonesia development, it needs to increase public investment to support development in the less-developed region. In line with more public investment to the region, the provision of incentives for investment in the region will be encouraged. The attractiveness for private investment by providing fiscal and monetary incentives is being processed by the government, in order to encourage private investment in the east Indonesia region. By considering the characteristics of the region and the constraints of the development, it is realized to have priority areas to be developed as growth centers at the beginning, which planned to be spread out the adjacent regions and its hinterlands. One of the development policies to develop such priority areas in east Indonesia region is called the development of the integrated economic development areas (KAPET/kawasan pengembangan ekonomi terpadu), which is prioritized to the 13 KAPET at the first stage in 13 provinces of east Indonesia region in the 1996/97 fiscal year.
     
     

    The Development of 13 Priority Areas (KAPET) for Integrated Economic Development in East Indonesia

    In Repelita VI, the national strategy for spatial planning states the policy to set up priority areas which have strategic values in the national development. The development of those priority areas is implemented by inter-sectoral or regional approach, and focussing to attract more private investment in the areas and its surrounding regions.

     

     
    In east Indonesia region, the national strategy for spatial planning has established 111 priority areas to be developed in PJP II, i.e., 56 areas located in east Indonesia region. For each priority area, it has been identified the strategic potential sectors can be developed optimally, which consists of eight strategic sectors as follows: estate crops, food crops, fisheries, livestock, forestry, industry, tourism, and mining.

    Accompanying those priority areas and their identified strategic sectors, there were production regions in east Indonesia such as for food crops in South Sulawesi, North Sumbawa, Kendari, and Gorontalo; estate crops in Kalimantan, Sulawesi, Maluku, and Irian Jaya; forest-related products in Kalimantan, Sulawesi and Irian Jaya; fisheries in Maluku; and livestock in Nusatenggara and Irian Jaya.

    In line with the development policy for the priority integrated economic development areas, there is a policy for the development of urbanized regions in east Indonesia which planned as the center for development for their surrounding areas, such as national development centers in Ujung Pandang, Manado, Pontianak, Banjarmasin, Kupang, and Jayapura; interregional development centers in Balikpapan, Samarinda, Palangkaraya, Mataram, Dili, Ambon, Merauke, Sorong, Palu, and Kendari.

     

    Strengthening East Indonesia Position for Globalization

    In order to implement the development policy for east Indonesia region, it needs to enhancing and strengthening its linkages with global and international economy, by developing regional growth centers in the region which has economic linkages to the international growth centers. The regional growth centers in east Indonesia have been established and identified in the national strategy for spatial planning, which classified into three level of centers such as nationally, interregionally, and regionally (locally). Related to the linkages to other international growth centers, there are national development centers that can be developed as follows:

     
    Regional development cooperatives involving provinces in East Indonesia need to be encouraged, such as: (I) between northern east Indonesia with southern Philippines and eastern Malaysia within the context of BIMP-EAGA; (ii) between the eastern east Indonesia with Papua Nugini and adjacent Pacific countries within the context of Arafura regional cooperative; (iii) between southern east Indonesia with northern Australia within Arafura cooperation; and (iv) among East Kalimantan, West Kalimantan, and North Sulawesi within the context of BIMP-EAGA economic cooperation.

    In order to compete with the countries in each sub-regional economic cooperation, the east Indonesia region is strengthening its information system for regional development and integrated area development.

    However, by considering that the regional cooperation may not only depend on the public investment, the role of private sectors has to be enhanced. This reason is very related to the principal mechanism for the sub-regional economic cooperation such as BIMP-EAGA, which has to be implemented by ‘private-led economic cooperation’. To support the implementation of the cooperation mechanism, the role of private sector investment in east Indonesia is still need to be encouraged, by providing incentives in fiscal and monetary fields parallel to the provision of sufficient basic infrastructures for regional development and basic infrastructure requirement for private investment in East Indonesia region.