The economic crisis revisited<\/p>\n
By Lance Castles<\/p>\n
YOGYAKARTA (JP): Reviews of the economic situation in
\nIndonesia typically speak in terms of gloom, pessimism and crisis
\neven though they should not necessarily do so.<\/p>\n
It seems the typical Jeremiah approach ignores at least three
\npoints.<\/p>\n
* Everyone seems to agree that if the economic crisis had not
\noccurred, former president Soeharto would not have \"stepped
\ndown\". So at worst, it is in some sense a blessing in disguise.<\/p>\n
* Monetary crisis is indeed a more accurate term than slump or
\neconomic contraction because it was mainly the money economy, not
\nthe real economy, which suffered a crisis. Prices indeed rocketed
\nor collapsed, many went bankrupt and the stock exchange and
\nforeign exchange markets experienced turmoil.<\/p>\n
The past tense is used here because stability has long
\nreturned to the money economy. One year ago, the rupiah was at
\n16,000 against the United States dollar and now it is Rp 9,000 to
\nthe dollar. This morning at the supermarket, we paid 15 percent
\nless for rice then we paid the previous four months. This is
\nhardly monetary chaos. But earlier too, real production, or goods
\nand services, behind the monetary veil, suffered a much smaller
\nchange.<\/p>\n
* The cliche that those who were hit hardest were the poor is not
\nborne out by the data. This seems to be a difficult point for
\nmost people to grasp.<\/p>\n
Obviously, when people are close to the breadline they will
\nsuffer more from any reduction of real income (subjectively
\nexperience it more bitterly) than will the rich.<\/p>\n
But objectively, the greatest proportional losses were
\nsuffered by the rich. Anyone who owned shares on the stock
\nexchange (including many foreign funds and speculators), found
\nthat their value in dollar terms dropped around 95 percent.
\nThose who owned houses or other valuables also found their value
\ndiminished and the conglomerates whose income was in rupiah but
\nwhose debts were largely in dollars found they were bankrupt. Not
\nto mention the many cronies whose \"capital\" consisted merely of a
\ncontract with the government, which has now been canceled. Their
\nexpected future income from that source is now, of course, zero.<\/p>\n
To further pursue the relative distribution of the (real)
\ndownturn, government figures show the urban sector has been
\nharder hit than the rural sector, Jakarta harder hit than
\nelsewhere in the country and Java harder hit than the other
\nislands. In fact, in some provinces outside Java, notably Bali,
\nreal income has continued to increase.<\/p>\n
It may be added that the informal sector has survived better
\nthan the formal, and the unpropertied sector better than the
\npropertied.<\/p>\n
According to Minister of Cooperatives and Small Enterprises
\nAdi Sasono, only 1 percent of the loans he has made are in
\narrears, compared with about 30 percent of nonperforming loans in
\nthe commercial sector. Some might remark that Adi gives loans at
\nsubsidized interest rates, but many conglomerates also were stuck
\nwith dollar loans.<\/p>\n
To see the economic downturn in its correct proportions, it is
\nnecessary to understand that for over 30 years Indonesia has been
\nexperiencing rapid economic growth; around 5 percent annually in
\nterms of real per capita.<\/p>\n
Not surprisingly, the proportion of Indonesians living below a
\nstandard poverty line dropped from about 60 percent to about 15
\npercent. This had already been achieved by the mid-1980s.<\/p>\n
We are now informed that Indonesia's real income in the year
\n1997\/1998 declined by l4 percent, followed by perhaps a further 3
\npercent decline in 1998\/1999. This is indeed the most severe
\ncontraction among Asian countries hit by the crisis. But it means
\nthe country goes back to the position it was in about three years
\nago.<\/p>\n
Is this a disaster? It is still two-and-a-half times the level
\nof the mid-1960s. The International Labor Organization's claim
\nthat another 40 percent of Indonesians have now sunk back into
\npoverty is an obvious falsehood because it assumes an impossibly
\ndiscontinuous income curve.<\/p>\n
Suppose the \"poverty line\" is US$300 per head per year. Now a
\ncontraction of 17 percent takes place in incomes. Those formerly
\nin the income range of $300 to $349 per year will now drop into
\nformally defined poverty. But clearly it is absurd to believe
\nthat 15 percent of the population are in the income range of zero
\nto $300 per year and then 40 percent in the income range of $300
\nto $349 per year.<\/p>\n
A more realistic picture might be that the proportion living
\nbelow the poverty line has temporarily risen from 15 percent to
\nabout 25 percent.<\/p>\n
The impression that Indonesia suffers from food shortages
\nperhaps arose from reports about a year ago from regions like the
\ninterior of Irian Jaya, Southeast Maluku and parts of Nusa
\nTenggara, which, like Papua New Guinea, were suffering the acute
\neffects of El Nio.<\/p>\n
But this is now a memory. The overall rice situation,
\naccording to government figures, is that the average Indonesian
\nconsumes about 50 percent more than he did in the mid-1960s.
\nObviously the rich were already full, so it must be the poor who
\nare getting more.<\/p>\n
Another example of a silver lining which most commentators are
\ndetermined to ignore is the reported 50 percent decline in log
\nproduction -- in forest despoliation. What a blessing for the
\nenvironment, all thanks to the crisis. But strangely,
\nconservationists never seem to derive any satisfaction from such
\nevents.<\/p>\n
In fact, the best way to envisage Indonesia's current economic
\nposition is to imagine we personally get the unwelcome news our
\nsalary for the coming two to three years is cut by 17 percent,
\nbut, not to worry, regular annual raises of 5 percent per annum
\nwill then return.<\/p>\n
The International Monetary Fund and most economists seem to
\nbelieve good growth will resume in Indonesia, though maybe at a
\nslower rate than in the bubble years before the crisis.<\/p>\n
We can adjust in three ways. We can reduce our savings -- for
\ninstance, if we were putting aside 20 percent for old age, we
\ncould cut that to 3 percent and maintain the same level of
\nconsumption.<\/p>\n
Or we could cut expenditures. For instance, this year we will
\nnot go home for the Muslim Idul Fitri holiday, but just telephone
\nour relatives. Or our son will have to go to a state school, not
\nthe private overseas school we were planning to send him to. Or
\nwe can dissave -- sell our car and go by bus, sell our gold or
\nland, run down our savings.<\/p>\n
It is these adjustments which people are making throughout the
\ncountry. For some they are unhappy adjustments. But not
\ncatastrophes. Certainly not a national catastrophe.<\/p>\n
That 40 percent less people are going on the pilgrimage to
\nMecca this year might be taken as a sign of how badly the crisis
\nis biting. But then the pilgrimage is an ideal example of a
\ndiscretionary expenditure. It is not obligatory if we cannot
\nafford it, and it can be postponed until better times.<\/p>\n
So why does the language of catastrophe dominate the media,
\nand even private discussion?<\/p>\n
First, it is in the interest of the media, which are watching
\nthe ratings and circulations, to shout gloom and doom.<\/p>\n
Secondly, it is obviously in the interest of opposition
\npoliticians to make things look as bad as possible. They can
\nblame the government, which tries to maintain that things are not
\nso bad after all -- and anyway the problems are caused by
\nforeigners.<\/p>\n
A new government will have a honeymoon period during which it
\ncan still blame all problems on the situation it inherited. After
\nthat it will have to fall back on the line that things are not so
\nbad.<\/p>\n
Meanwhile, each minister -- of education, cooperatives,
\nagriculture, social welfare -- tries to depict the picture in his
\nfield in as gloomy terms as possible so as to get more funds.
\nEconomics ministers in general were taken aback when a recent
\nWorld Bank report -- after a year of Jeremiads -- suggested the
\ncrisis was being exaggerated. Would this not make it harder for
\nIndonesia to get funds?<\/p>\n
There still seems to be a problem. Why do even disinterested
\nacademics think things are so terrible? Perhaps this is because
\nof guilt. In their comfortable houses they think guiltily of the
\npeasants or pedicab drivers who must be having it so much worse.
\nBut are they?<\/p>\n
In view of the strong bias of the losses to the propertied,
\nformal and urban sectors, people who are feeling the pinch should
\nbetter remember that it will not last forever, and at any rate
\nthings were much worse on average in their fathers' time. If they
\ndo not feel worse off, or are even better off, as many are, they
\nshould not feel guilty about it. And in either event, they could
\ntake the media, pundits and politicians with a grain of salt.<\/p>\n
A colleague has maintained that another motivation for
\nexaggerating the severity of the crisis is to record a vote for a
\nreform of the world economic system, which supposedly caused, or
\ndid not prevent, the crisis. Improvements in international trade,
\ninvestment and payment arrangements may be possible, but whatever
\none great economist or world bloc blames, others assert the
\nopposite. Some want a borderless world, others want more control.<\/p>\n
Is Malaysian Prime Minister Mahathir Mohamad on a disastrous
\ntack, or was Malaysia's former deputy prime minister Anwar
\nIbrahim? Is U.S. investment manager George Soros the hedge fund
\noperator the villain, or is George Soros the peddler of nostrums
\nan even greater danger? Or, none of the above.<\/p>\n
Ultimately the motivation here seems to come back to the
\nfactors already mentioned. Some Westerners -- academics and do-
\ngooders, not governments -- deplore the economic devastation \"we\"
\nhave brought to Asia -- the aforementioned guilt factor.<\/p>\n
For governments and intellectuals in the region, this is a
\nstick to beat the West with and avert blame from themselves.
\nAbout 80 percent of the population of Asia live in countries
\nwhere economic growth has not ceased during the so-called Asian
\ncrisis. These include China (expected growth in 1999 according to
\nThe Economist's poll of forecasters: 7 percent), Taiwan (4
\npercent), India (4 percent), Pakistan, Sri Lanka and Vietnam.
\nApart from Indonesia, countries expecting a downturn this year
\nare Hong Kong (1.5 percent), Japan (0.7 percent), Malaysia (0.2
\npercent), Thailand (0.4 percent) and Singapore (0.1 percent).<\/p>\n
So where is the occasion for guilt and gloom? Please, a little
\nless despair on the financial pages.<\/p>\n
The writer, an Australian political scientist, is a visiting
\nlecturer in political science at Gadjah Mada University in
\nYogyakarta.<\/p>\n
Window A: There still seems to be a problem. Why do even
\ndisinterested academics think things are so terrible? Perhaps
\nthis is because of guilt. In their comfortable houses they think
\nguiltily of the peasants or pedicab drivers who must be having it
\nso much worse. But are they?<\/p>\n
Window B: To see the economic downturn in its correct proportions,
\nit is necessary to understand that for over 30 years Indonesia has
\nbeen experiencing rapid economic growth; around 5 percent annually
\nin terms of real per capita.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/the-economic-crisis-revisited-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}