RI needs fair trade, investment, not new debts<\/p>\n
David E. Sumual, Analyst, Danareksa Research Institute, Jakarta<\/p>\n
Nothing unusual took place at the annual CGI meeting last
\nweek. As expected, the Consultative Group on Indonesia (CGI)
\nconcluded its annual ritual, pledging US$3.4 billion in loans
\n(vis-a-vis $3.1 billion last year). The higher amount of loans
\nrequired is the consequence of Indonesia's ineligibility for
\nParis Club debt rescheduling.<\/p>\n
However, it may also be a more worrying signal, that Indonesia
\nhas entered into a debt-trap situation. The large amount of money
\nneeded to service the foreign debts ($10.5 billion or about 5
\npercent of 2004 GDP) may mean that the country's economic outlook
\nis threatened.<\/p>\n
The huge amount of international debt has turned Indonesia
\ninto a nation of beggars since surely no aid is unconditional.
\nThe countries that have control over the money lent to the nation
\nmay easily dictate the policy of the government, raising people's
\nsuspicion of neo-colonialism.<\/p>\n
This means that Indonesia must be ready for not only the
\ncreditors' economic proposals (such as reducing subsidies,
\nprivatization or market or eliminating tariffs) but also
\npolitical pressures (such as Aceh, Papua or human rights cases).
\nThis trend would of course restrict Indonesia's sovereignty as
\nseen recently by the World Bank's intervention regarding
\nIndonesia's counter purchase scheme, although the matter is
\nobviously not its area of expertise.<\/p>\n
Domestically, instead of helping the poorest people, debt
\nleads to an incorrect allocation of resources due to
\nmisappropriation and corruption. A significant portion of the
\ndebts even end up in the pockets of consultants from the donor
\ncountry -- swallowed up in the government bureaucracy -- or by
\ncronies of the elite, rather than going toward infrastructure,
\nhealth and education.<\/p>\n
This is a dangerous trend because only a small percentage of
\nthe population enjoys the benefits of aid or debt. Another
\nproblem is that foreign aid tends to distort markets as the
\ndebtor is usually bound by an agreement to procure goods and
\nservices from the country that provides the funds.<\/p>\n
As such, it is important to shift emphasis from the vicious
\ncycle of dependency on debts to promote fair trade and
\ninvestment. Some stylized facts in Japan, Singapore and European
\ncountries, for example, show that aid is only a necessary
\ncondition, while market access plays a prominent role in inducing
\neconomic growth. Therefore, the government must continue to
\nintroduce policies that promote trade as well as urge developed
\ncountries to open their markets.<\/p>\n
Through the World Trade Organization (WTO) meeting in Geneva
\nthis week, Indonesia must push the industrialized nations to
\nprovide a level playing field by eliminating various trade
\nbarriers. This is important since many developed countries impose
\nhigher tariffs on products in areas where they do not have the
\ncapacity to export, such as agricultural and processed products.
\nIn other words, the developed countries have stolen back the
\nmoney they gave in aid through unfair trade.<\/p>\n
In contrast, although there are good reasons for Indonesia to
\nprotect its agricultural markets on food-security grounds, the
\ndonor countries and the World Bank recently pushed Indonesia to
\nslap import tariffs on staple foods. It appears that the World
\nBank has tried to implement free trade without any exceptions,
\nwhich is a bad policy formulation.<\/p>\n
The World Bank seemingly ignores the appropriate sequence for
\ndeveloping countries -- like Indonesia -- to take in liberalizing
\ntheir markets, disregarding the possible negative impact on the
\nrural population.<\/p>\n
In line with promoting fair trade, the government,
\nnonetheless, must prepare a policy that can shift Indonesian
\ndevelopment to the next level. Referring to the \"flying geese\"
\nmodel, Indonesia must diversify from its reliance on some
\ninefficient industries, such as the textiles industry -- which
\nhas come under pressure from more efficient competitors -- to
\nother promising processed products, such as electronics.<\/p>\n
This is imperative given the recent decision of the U.S.,
\nCanada and Europe to phase out quotas on textiles in 2005, as
\npart of the deal at the World Trade Organization.<\/p>\n
At the same time, Indonesia must continue to improve its
\ninvestment climate by solidifying its political will to eradicate
\ncorruption. Corruption, which in the Soeharto era was perceived
\nas the grease of the economic machinery, is no longer suitable
\nfor the changing global economic and political milieu.<\/p>\n
Now, more countries have joined the open world economy,
\nincreasing competition among countries to attract foreign direct
\ninvestment. China, Vietnam, Russia, and Eastern Europe -- that
\nspent nearly 50 years in isolation and provided the window of
\nopportunity for Indonesia to enjoy 7-9 percent economic growth --
\nhave reawakened.<\/p>\n
As such, Indonesia must better prepare a comprehensive
\nstrategy to compete with those countries, especially a strategy
\nto attract investors in the infrastructure projects to ensure
\nphysical access to the market.<\/p>\n
With its mutual risk-sharing characteristics and given
\nIndonesia's rampant corruption, investment is actually more
\nattractive than debt -- that requires certain payments either for
\nprofit or loss projects. A $100 investment in a good enterprise
\ncould be like receiving aid of $100 many times over.<\/p>\n
Moreover, investment also boosts employment, having a
\nmultiplier effect on the economy through consumption, not
\nmentioning the intangible opportunity for the people to improve
\ntheir skills and access to the advanced technology.<\/p>\n
All in all, the government must focus in the short term on
\ndeveloping a strategic plan to reduce debts, similar to the
\nThailand scheme that put the foreign debt as only a supplementary
\nelement of its budget.<\/p>\n
Otherwise, a culture of dependency will continue, ensuring the
\ncontinuation of Indonesia on the periphery and the dominance of
\nlender countries at the core, with our grandchildren inheriting
\nthe mountain of debt.<\/p>",
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