Part 2 of 2 Rethinking development -- Pain or gain?<\/p>\n
Yanuar Nugroho, Director, The Business Watch Indonesia,
\nSurakarta, yanuar-n@unisosdem.org<\/p>\n
A second lesson is that development must be sustainable and
\nenvironmentally sound. If economic development destroys the
\nearth's natural resource base in the process, it is self-
\ndefeating. But, this is what is happening.<\/p>\n
The soil is being depleted, with nearly two million hectares
\nof land worldwide eroded and some areas facing sharp losses in
\nproductivity. One-fifth of all tropical forests have been
\ncleared, reaching a total loss of nearly 200 million hectares
\nbetween 1980 and 1995.<\/p>\n
One-third of all terrestrial biodiversity, accounting for 1.4
\npercent of the earth's surface, are in vulnerable hot spots and
\nthreatened with complete loss in the event of natural disasters
\nor further human encroachment.<\/p>\n
Fifty-eight percent of the world's coral reefs and 34 percent
\nof fish species are at risk from human activities, 70 percent of
\nthe world's commercial fisheries are fully exploited or
\noverexploited and experiencing declining yield, the World Bank
\nfound.<\/p>\n
These calamities are happening because economic solutions are
\nconsidered as the only way out for various problems affecting
\nhumankind. While it is true that there exists some or many
\nsuccessful economic approaches, it does not legitimate
\napplication in all other cases -- such as debt.<\/p>\n
Since the economic crisis struck in 1997, the rupiah devalued
\nby an actual 400 percent, making it impossible for the country to
\npay its debt. The debt has therefore been rescheduled through the
\ngroups of donors in the Paris Club and London Club.<\/p>\n
Yet, one condition for rescheduling applies. It is the Letter
\nof Intent (LoI) with the International Monetary Fund (IMF), which
\nis also a precondition in getting support from other financial
\ninstitutions like the Consultative Group on Indonesia (CGI), the
\nAsian Development Bank and the World Bank.<\/p>\n
Indonesia was thus registered for treatment with the
\nInternational Development Association, with the obligation to
\nfollow IMF's prescription.<\/p>\n
Together with the World Bank, the IMF embarked on a policy to
\nstructurally adjust the Third World by deflating economies and
\ndemanding a withdrawal of government, not only from public
\nenterprise but also from compassionate support of the basic
\nhealth and welfare of the most vulnerable. Exports to earn
\nforeign exchange were privileged over basic necessities, food
\nproduction and other goods for domestic use.<\/p>\n
In 1986, the IMF set up its first formal Structural Adjustment
\nFacility, which was followed by the World Bank in 1989 with
\ncontracted adjustment loans to 75 percent of the countries that
\nalready had similar IMF loans in place.<\/p>\n
The bank's conditions both extended and reinforced the IMF
\nprescription for financial liberalization and open markets. They
\nincluded privatizing state-owned enterprises, massive public
\nsector layoffs, cutting basic social services and subsidies on
\nbasic foodstuffs, and reducing trade barriers.<\/p>\n
In Indonesia, one of the policies imposed by the IMF is a
\nbailout for banks' debt, which transforms private debt into
\npublic debt under the responsibility of the government, which has
\nto issue obligation letters.<\/p>\n
This domestic debt, which is more than Rp 164.53 trillion, in
\naddition to debt-guarantee certificates worth more than Rp 53.77
\ntrillion, most of which has been corrupted, has to be paid
\nannually. It is taken from an around 36 percent allocation of the
\nstate budget, or the people's money.<\/p>\n
Further, graphs from the World Bank and JP Morgan show that
\nthe exchange rate of the rupiah fluctuates significantly, and
\nthat the effective currency rate of most Asian countries under
\nIMF's control (e.g. Indonesia, Korea, the Philippines and
\nThailand) has decreased. The exception in the region is
\nMalaysia, which is not under IMF supervision.<\/p>\n
Rethinking development has long become urgent. Development is
\nnot top-down steps devised behind closed doors of decision
\nmakers. It must be comprehensive and holistic, in terms of:
\no Taking account of the interrelationships among the different
\nelements of development strategies;
\no Inclusion and participation, based on bringing together all the
\nshareholders in development -- civil society, local groups, NGOs,
\nprivate sector and the poor themselves-in order to foster trust
\nand sustainability;
\no Combine a long-term perspective with a sharp focus on getting
\nearly results on the ground;
\no Crucial involvement of comprehensive partnerships and
\ncoalitions for change.<\/p>\n
Moreover, development should recognize that globalization and
\ntrade expansion are good for growth, but that we must pay careful
\nattention to the social and societal effects of the transition to
\nparticipation in international markets.<\/p>\n
Trade expansion alone is not a panacea, but needs to be seen
\nas a component of a wider development and poverty reduction
\nstrategy-a strategy that must foster better human capital,
\ninfrastructure and institutions if it is to pay off.<\/p>\n
Let us look at following scenario of Indonesia in 2003, as
\npredicted by Consensus Economics (CE).
\n% change
\n2002*
\n2003+
\n2004+
\nGDP
\n3.4
\n3.6
\n4.1
\nPrivate consumption
\n5.1
\n3.9
\n4.5
\nFixed Investment
\n-3.2
\n1.4
\n3.5
\nIndustrial Production
\n3.8
\n4.1
\n5.1
\nCurrent account ($billion)
\n6.0
\n5.8
\n4.8
\n* Estimates + ForecastSource: Consensus Economics Inc.<\/p>\n
CE expects that the Indonesian economy this year will grow by
\n3.6 percent, a little bit higher than last year's estimate of 3.4
\npercent, but still only about half the speed at which the economy
\nneeds to grow to keep apace with the new workers entering the
\nlabor market. As the world's fourth-most-populous country,
\nIndonesia will not make much of a dent in poverty with this
\nscenario.<\/p>\n
Rethinking development must also to take into account the new
\nchallenges represented by our globalizing world. It is not only
\nto act as a reminder about how globalization is transforming the
\nworld economy but also to focus on what can be done to help
\ndeveloping countries, especially the poorest and those most
\nburdened by debt.<\/p>\n
This would allow them to make the most of the opportunities
\noffered by the world economic system, which has been simply
\nunjust and unfair to the poor over past few years. The question
\nnow is whether we can do it, with an understanding of the grave
\nconsequences if we do not.<\/p>\n
The writer is also a lecturer of the Sahid University in
\nSurakarta and a researcher at Uni Sosial Demokrat, Jakarta.<\/p>",
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