RI needs constitutional economy<\/p>\n
By Akhmad Mukhtar<\/p>\n
JAKARTA (JP): The prolonged economic crisis in Indonesia
\nreflects the bad policies and poor economic management of the
\ngovernment, the administration of which is poorly regulated.<\/p>\n
In issuing regulations, the government usually has the naive
\nassumption that all its bureaucratic personnel are sincere and
\nhonest. However, the unbounded greed and power of its personnel
\nhave resulted in unbounded economic problems that tend toward
\nchaos.<\/p>\n
During this hard time marked by the worst economic problems,
\nIndonesians have learned in a very expensive way that in a market
\neconomy, economic development without proper constitutional
\nlimitations on the government undoubtedly produces economic chaos
\nand destruction. Any economy in this world is bound to self-
\ndestruct when it has reached unbearable inefficiencies in the
\nsystem.<\/p>\n
It is unwise to blame the international financial community of
\nhaving caused the rupiah's fall in value. The rupiah's sharp
\ndepreciation has been caused simply by the government's unchecked
\npower that has produced many inconsistencies in economic policies
\nand price distortions.<\/p>\n
The government has been sending the wrong signals to the
\nmarket for quite a long time, which eventually resulted in the
\nplunge of the local currency.<\/p>\n
Indonesia, for example, for its own sake and for a better
\nfuture, needs a constitutional economy. To protect its people,
\nthe government needs to introduce constitutional constraints that
\nwill limit its own authorities.<\/p>\n
The unchecked power of the government is generally seen by
\nbusinesspeople as a supply of exploitable resources for expanding
\nbusiness in the pursuit of profit. Nobody in business can resist
\nthis kind of opportunity. The closer the businesspeople are to
\ngovernment officials, the more temptation they have to exploit
\nthe unchecked power as a resource. It could be in the form of
\nmonopoly power in the market or limitations on new entrants to
\nthe market. Consequently, most domestic markets are not
\ncontestable and shadow pricing is common -- producing
\ninefficiency in almost every production and distribution
\nactivity.<\/p>\n
Businesspeople are not competing in the form of producing high
\nquality products and services at competitive prices to consumers.
\nInstead, they are competing for the affection of those in power
\nand lobbying government officials, which takes up a great deal of
\ntheir daily agendas. The unchecked system has created this kind
\nof behavior, and success in the establishment of a conglomerate
\ndoes not necessarily indicate hard work and thrift.<\/p>\n
For a constitutional economy to work, there are, at least,
\nthree important areas that the government should practice
\nconstraint. First, the government should balance its budget.
\nContinuous deficit spending will push up inflation because by
\nnature the government has only two options to finance a budget
\ndeficit -- by printing money or increasing borrowing. Printing
\nmoney creates inflation instantly, while heavy borrowing
\neventually forces the monetary authority to pay debt interest and
\nprincipals at a higher level than the economy can support
\nsustainable growth.<\/p>\n
Second, monetary constraint should be enforced by prohibiting
\nthe government from using the power of tax inflation. There
\nshould be a constant growth of money supply of, say, 3.5 percent
\nor 5.8 percent per year, because a lack of discipline in monetary
\npolicy will result in poor discipline in fiscal policy.<\/p>\n
Finally, the central government must provide stronger fiscal
\npower to the provincial and regional administrations, encouraging
\nthem to be more responsible with their own plans with their own
\navailable resources. Such a policy would reduce tensions in some
\nprovinces because local communities thus far feel that they have
\nbeen robbed of their wealth by the central government and their
\ninterest neglected in the process of economic development.<\/p>\n
What kind of fundamental economic reform does Indonesia need?
\nThe answer is that there should be constraints placed on the
\ngovernment in a number of areas. Democratization, therefore, is
\nneeded to facilitate the enforcement of constitutional
\nconstraints. Student demonstrations in some provinces, although
\nseemingly without clear conception, are a pure reflection of what
\nthe people need -- a real fundamental for the economy in the
\nfuture, not in terms of macroeconomic indicators but a
\nconstitutional economy that is the fundamental of a sound
\neconomy.<\/p>\n
The writer is an economist and international finance
\nconsultant in Jakarta.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/ri-needs-constitutional-economy-1447893297",
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"sponsor": "Okusi Associates",
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