Small-scale enterprises and the grassroots economy<\/p>\n
Small and medium-scale enterprises (SMEs) have always emerged
\nas a major topic in seminars and discussions about Indonesia's
\ndevastating economic crisis.<\/p>\n
The general conclusion is that, had it not been for the
\nflexibility and resilience of SMEs, the entire Indonesian economy
\nwould long ago have collapsed into total ruin. So it was that the
\nSMEs have been hailed as the savior of the economy.<\/p>\n
However, while such multilateral institutions as the World
\nBank and the Asian Development Bank always define SMEs as a
\nsegment of the corporate or business sector, some economists view
\nthem as part of what they refer to as the people's economy (or
\nthe grassroots economy).<\/p>\n
Other economists have tended to lump SMEs into what they call
\nthe informal economy, frequently seen as synonymous with the
\neconomy of the poor.<\/p>\n
The different interpretations have led to different analyses
\nof economic problems resulting from different policy
\nrecommendations, as can be seen in the debates within the year-
\nend panel discussions of The Jakarta Post<\/p>\n
One of the panelists asserted that Indonesia has never
\nactually suffered an economic crisis. What it has been mired in
\nsince 1997 is, instead, only a banking collapse, or a monetary
\ncrisis.<\/p>\n
\"Just look at what the government has established to cope with
\nthe crisis,\" the panelist added. \"It is a bank restructuring
\ninstitution (Indonesian Bank Restructuring Agency), and not an
\neconomic restructuring agency.\"<\/p>\n
Hence, he said, it is the banking industry that is severely
\nsick -- not the nation's economy, nor the people's economy.The
\ncommon people in the rural and urban areas, he said, have been
\ndoing well.<\/p>\n
He asked what it meant when the economy succeeded in growing
\nby 4.8 percent in 2000 -- at a time when most business
\nconglomerates were being treated at the emergency hospital of
\nIBRA.<\/p>\n
Likewise, the national economy is estimated to grow by at
\nleast 3.5 percent in 2001, in spite of the weakening global
\neconomy and a crippled corporate sector.<\/p>\n
That meant that the common people's economy, which accounts
\nfor 75 percent of the national economy, has been performing well,
\ncoming out as the savior of the economy as a whole.<\/p>\n
Now that the nation's economic carrier has been salvaged by
\nthe people's economy, it is entirely irrational not to recognize
\nthe crucial role of the common people in the national economy.<\/p>\n
He sees the people's economy as a self-reliant one, not
\ndependent on big inflows of foreign capital. Hence, foreign
\ncapital inflow is not the prerequisite for a strong economic
\nrecovery.<\/p>\n
The economist also advised the government, which he said had
\nalmost fallen into bankruptcy in bailing out big conglomerates,
\nnot to undertake any new borrowing, and not to pursue high growth
\ndriven by big conglomerate investment as a high priority policy.<\/p>\n
According to his view, new foreign borrowing to plug the state
\nbudget hole (or deficit) is not the right medicine to cure what
\nails the national economy.<\/p>\n
\"The Indonesian economy is not sick at all; it has only been
\nknocked into unconsciousness by the power of the global economy,\"
\nhe said. \"The most effective way of dealing with these greedy,
\npowerful capitalists is to further strengthen the resilience, and
\nnot the competitiveness, of the national economy.\"<\/p>\n
He defined this competitiveness as a development process that
\nmakes efficiency, not justice, its top priority.<\/p>\n
On the other hand, a national economy with a strong resilience
\ncan be constructed only through development with a built-in
\nprinciple of justice, designed to empower the common people's
\neconomy.<\/p>\n
Other panelists, while concurring on the crucial role of SMEs
\nand the grassroots economy, disagreed with the assumption that
\nthe common people have been doing well during the crisis.<\/p>\n
They cited the fact that almost 40 percent of all people are
\neither underemployed or fully unemployed, and that almost 16
\npercent of the population lives below the poverty line (based on
\na daily per capita spending of $1 to support their argument).<\/p>\n
\"Official statistics show that since the onset of the crisis
\nthe per capita value generated by small businesses and cottage
\nindustries has been declining and their proportional share of the
\nnational economy has been decreasing,\" one panelist said.<\/p>\n
It is, therefore, ill-advised to see small firms, cottage and
\nhome industries as the backbone of the national economy, as their
\nback is quite fragile, he added.<\/p>\n
He argued that the national economy expanded by 4.8 percent in
\n2000. But since the economy contracted by almost 14 percent in
\n1998 and remained flat in 1999, the 2000 expansion was far from
\nsufficient to accommodate new job seekers -- not to mention the
\nlarge pool of unemployed and underemployed.<\/p>\n
This economist also observed that the farmers' terms of trade
\nhas been declining, and that the capacity of the rural economy to
\naccommodate job seekers has also been decreasing. There has
\ninstead been a strong push from the rural areas which has, in
\nturn, set off a higher rate of urbanization.<\/p>\n
\"Job creation should be made the top priority,\" said the
\neconomist. \"The problem, though, is that new investment is needed
\nto generate jobs, while the state budget cannot provide fiscal
\nstimulus and private investors remain jittery about the security
\nand political condition as well as weak law enforcement.\"<\/p>\n
The focus, then, should be on making the total environment
\nhospitable to private-sector investment -- including that of
\nSMEs. Another panelist disagreed with the argument that the
\ngovernment should completely stop new foreign borrowing.<\/p>\n
\"How could the government survive without new foreign loans?\"
\nhe asked. \"Its revenues are not even enough to cover its debt
\nservice payments, its price subsidies for basic commodities,
\nfuels and civil servants' salaries.<\/p>\n
\"That is the stark reality that we have to live with,\" he
\nadded. \"The best the government can do is steadily cutting down
\nnew foreign borrowings until they stop altogether in 2004, as it
\nhas pledged to do.\"<\/p>\n
In fact, he said, the government has already begun decreasing
\nits foreign borrowings.<\/p>\n
For fiscal year 2002, for example, the Consultative Group on
\nIndonesia has pledged, at the government's request, only Rp $3.1
\nbillion in new loans -- compared with the $4.7 billion that had
\nbeen committed for 2001.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/small-scale-enterprises-and-the-grassroots-economy-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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