Should Indonesia rely on the U.S. dollar?<\/p>\n
Imam Nur Azis and Jason Meade, Center for Indonesian Reform, Jakarta<\/p>\n
The U.S. dollar should remain weak over the next decade at
\nleast, for a number of reasons. Firstly, the U.S. is currently
\nincurring enormous budget deficits which are being financed by
\ntaking on new debt. However, the borrowing the U.S. government is
\ncommitting to is not intended to finance anything productive or
\npositively beneficial to the United States.<\/p>\n
The bulk of the money being borrowed is being spent on
\nincreased defense and "homeland security" related initiatives.
\nUnfortunately, these initiatives are only intended to prevent a
\ncatastrophic attack on the U.S.<\/p>\n
Even if every one of these initiatives is completely
\nsuccessful, they will contribute little or nothing to the
\nadvancement of the U.S. economy. They will only prevent its
\nretardation by antagonistic powers. The decay of America's
\nphysical and human infrastructure will continue unabated under
\nthe current government initiatives, and will even be exacerbated
\nby the future need to repay the debts currently being taken on.<\/p>\n
Over the next decade, the debts being incurred today will have
\nto be repaid by the Americans. However, since the Bush
\nadministration is simultaneously pushing for large and permanent
\ntax reductions for the richest segments of American society, the
\nburden of repaying today's debts will almost certainly fall to
\nthe individual American taxpayers of the middle and lower
\nclasses.<\/p>\n
This repayment will come either in the form of further
\ngovernment cutbacks, or increased taxes, or both. Whatever the
\nfinal formula, the outcome will be the same -- a severe reduction
\nin the economic health of the average American consumer and of
\nthe national economy generally.<\/p>\n
As an example of the long-term effects of the current budget
\nproblems, consider the case of publicly funded university
\neducation in the United States. A large number of the American
\nstates have been forced to raise the attendance fees at publicly
\nfunded universities substantially over the past two years, and
\nfurther large increases are contemplated for at least the next
\nyear or two.<\/p>\n
As a result, the number of people enrolling in university has
\ndeclined noticeably each year, which may eventually affect the
\nworkforce.<\/p>\n
The effect will be long-term and may be irreversible. At the
\nsame time, fewer foreign students are being allowed into American
\nuniversities as a result of "homeland security" concerns, and
\nthose who are admitted face even larger bills than the American
\nstudents do.<\/p>\n
The current U.S. economic situation demonstrates that the
\nconsumer spending levels are probably already unsustainable, and
\nthat anything from a gentle decline to a crash in those levels
\nshould be considered as a serious possibility over the next five
\nyears to 10 years. Of course, this would have extremely serious
\nconsequences for the U.S. economy and its international position
\ngenerally.<\/p>\n
The business community in the U.S. faces an array of new, and
\npossibly permanent, burdens on the conduct of its affairs.
\nThe broadest burden is the loss of confidence on the part of both
\ndomestic and foreign business and investment directors in the
\nquality of the U.S. economy.<\/p>\n
The titanic corporate scandals that have hit the American
\neconomy over the past few years cast a long shadow over investor
\nconfidence, and the lackluster government response to the crisis
\nhas failed to dispel that shadow.<\/p>\n
Also, the constant government warnings of impending terrorist
\nattacks against U.S. targets have also served to dampen the
\nspirits of both consumers and business people. The airline
\nindustry has been particularly hard hit by this phenomenon.
\nFurthermore, the deterioration of the national infrastructure
\nalso contributes to the gloomy outlook for American business.<\/p>\n
At the same time, U.S. businesses face many real and
\nunexpected burdens stemming from the "war on terrorism". There
\nare many new rules and regulations associated with preventing
\nterrorism. These rules and regulations frequently require
\nbusinesses to change their operating procedures, retrain some
\nemployees, and file more paperwork.<\/p>\n
Businesses also face new fines for not complying with the new
\nregulations. None of this extra work contributes to the
\nprofitability of the companies. As in the case of increased
\ngovernment spending, the increased business spending is only
\nintended to prevent a retardation of business. Post Sept. 11
\n2001, U.S. businesses has faced much more work and the need to
\nspend more money to achieve the same outcome as they would have
\nhad before the terrorist attacks.<\/p>\n
These increased operating costs are most likely permanent. At
\nthe very least they will persist through the rest of the decade.
\nTherefore, U.S. business will either have to raise prices to
\ncover the new costs of doing business (which will further hit the
\nAmerican consumer), or else keep prices the same and accept a
\nlower level of profitability. Either scenario works out to yet
\nanother hit against the U.S. economy.<\/p>\n
All these trends indicate a further weakening of the American
\neconomy over the next decade. The above areas of concern are by
\nno means comprehensive of the problems facing the U.S. economy.
\nSpecific issues relating to the projected series of foreign
\nmilitary actions have not even been considered here, for example.
\nThe intent is only to show the breadth of the problem.<\/p>\n
The U.S. economy is the pillar on which the strength of the
\ndollar rests. Without the economy, the dollar will be of little
\nvalue. Therefore, it is quite prudent for the Indonesian
\ngovernment to reexamine the wisdom of its reliance on the dollar.
\nAs Vice President Hamzah Haz has noted, the switch from the U.S.
\ndollar to the Euro ought not to be carried out for political
\nreasons, but there are definitely sound economic reasons to
\nquestion the future strength of the dollar.<\/p>\n
The writers are alumni of the Leeds University in the United
\nKingdom.<\/p>",
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