Wither populist policies?<\/p>\n
By Winarno Zain<\/p>\n
JAKARTA (JP): How do we read Hubert Neiss's recent visit to
\nMegawati? The fact that the International Monetary Fund Director
\nfor Asia and Pacific felt it necessary to meet the leader of one
\nof the biggest political parties in Indonesia, was an
\nacknowledgment that the economic reforms could be off track when
\nthe new cabinet forms after the June 7 election.<\/p>\n
It is an indication that Neiss has started worrying about the
\ncommitment of the next government toward the economic reforms.
\nNot much was revealed at the meeting between Neiss and Megawati.
\nBut one can assume that at the meeting Neiss explained the
\nimportance of continuing economic reforms in Indonesia. Or may be
\nNeiss sought assurance from Megawati, that should she be elected
\nas next President, she will not abandon the economic reforms as
\nmandated by the IMF in favor of adopting more populist economic
\npolicies.<\/p>\n
Populist economic policies have been the dominant theme in the
\npolitical statements of some major political parties. Populist
\nprograms are the most attractive among the people and one that
\ncan be easily understood.<\/p>\n
It is a logical response after so many years of repression by
\nthe Soeharto government. In the aftermath of economic meltdown,
\nthe gross injustices committed by the former government and in
\nthe midst of the debris of Soeharto and his cronies' economic
\nempire, the case for adopting populist economic policies in the
\nnext government are overwhelming indeed. Even though some aspects
\nof the populist policies are questionable, politically and
\neconomically, it can not be denied that the appeal of populist
\npolicies are strong and powerful.<\/p>\n
Populist programs consist of several elements, even though
\nsome of them are not explicitly spelled out. The emphasis is on
\nthe growth of small and middle entrepreneurs, the advancement of
\ncooperatives and the increase of income for farmers.<\/p>\n
The populist proponents claim that these were the groups who
\nsuffered most and who were discriminated against during the
\nSoeharto era. They claim the government has wasted enormous
\nresources in collusion with big businesses. They want to correct
\nthe allocations of resources by giving more resources to these
\ngroups. Proponents of populist policies acknowledge that what
\nthey are seeking is a kind of affirmative action policy, where
\nthe government has to take sides in favor of a certain group,
\nsuch as those who are deemed as economically weak.<\/p>\n
Although almost every politician says they support populist
\npolicies, there is one figure, however, who stands taller than
\nthe others. Adi Sasono, the Minister of Cooperatives and the
\nDevelopment of Small and Middle Entrepreneurs is definitely the
\nmost visible person behind the push for populist policies. Dubbed
\nas \"the most dangerous man\" by Asiaweek magazine recently, Adi
\nis getting more popular every day.<\/p>\n
Adi has been campaigning for the development of small
\nentrepreneurs and the return of their rights for better treatment
\nfrom the government, long before he was appointed cabinet
\nminister. As an NGO activist, Adi saw with his own eyes many
\ninjustices and destructive policies inflicted by the authorities
\nagainst the weak and the poor. When Adi spoke at seminars, or
\nwhen he delivered speeches, you could be sure that the theme of
\nhis speech was the plight of the poor.<\/p>\n
His speeches were full of harsh criticisms and attacks on the
\nSoeharto government and conglomerates. And Adi did this when
\nSoeharto was in power! Speeches by Adi about the plight of the
\npoor, had an aura of sincerity, since they came from his own
\npersonal experiences and observations during his NGO days. His
\nspeeches are convincing and powerful. They are not slogans as it
\nmight sound if uttered by other politicians.<\/p>\n
There are other issues which are part of the populist
\nplatform, not explicitly formulated, but rather put forward as
\ngeneral remarks, reflecting their attitudes or opinions on
\ncertain issues. The populist proponents, for instance, although
\nnot entirely opposed, are not in favor of free market mechanism.
\nThey believe free competition only gives an advantage to the big
\nbusiness, while depriving small enterprises their opportunities
\nto survive and develop. They believe government intervention is
\nstill required for more equitable resource allocation.<\/p>\n
They asked the government to put in more money for
\nagricultural development, whose progress had been lacking
\ncompared with the growth of the industry. They accused the
\ngovernment of neglecting agricultural development, causing the
\nstandard of living of farmers to remain low.<\/p>\n
In this regard, they forget that for many years, most of the
\ngovernment development expenditure went to the agricultural
\nsector. They feel building modern industrial sectors was a waste
\nof money, since these industries could not compete in the
\ninternational market anyway. It was better the funds were spent
\nfor agriculture to improve the lot of farmers that constitutes
\nthe majority of the population.<\/p>\n
They claim they are not anti-big business and anti-Chinese
\nbusiness per se, as long as the size of their business was
\nacquired in a fair and legal manner. Even though they are not
\nentirely opposed, they are not enthusiastic, and even suspicious
\nof globalization. They view globalization as being forced by the
\nindustrialized countries on the less-developed countries as a
\nmeans by which foreign companies could gobble up domestic
\ncompanies who lost the battle in globalized economy.<\/p>\n
They say you can not let domestic companies compete because
\nthey are still weak and need protection. Clearly, they view
\nglobalization as being more of a threat than an opportunity for a
\ncountry. On the issue of privatization of state companies, we
\nstill hear some nationalist sentiment. They reject an outright
\nsale of state companies specially those operating in vital
\nindustries to private sectors including foreign companies. They
\nview privatizing strategic and important industries
\nunconstitutional.<\/p>\n
If policies of the new cabinet are dominated by economic
\npopulist programs, there would be some risk for the
\nsustainability of economic reforms. Populist programs, if carried
\nout too far could undermine monetary and fiscal stance, placing
\nobstacles for achieving strong macroeconomic foundations, that
\nare necessary for economic recovery.<\/p>\n
Resource allocation would be based on political consideration,
\nnot economic, making the economy less efficient. The pressure for
\nloose monetary policies to ease the pains of the business sector
\n-- specially the small business -- would be too great for the
\ngovernment to resist. Similarly, pressure for expansionary fiscal
\npolicies would be tremendous, posing a great risk for the
\ngovernment budget. There is a risk that the government would
\ncarry out populist programs at the expense of sound monetary and
\nfiscal policies.<\/p>\n
The proponents of populist policies do not appreciate the
\nimportance of macroeconomic stability as a precondition for a
\nsustainable economic growth. They say that if government
\nsubsidies to certain groups result in budget deficit and high
\ninflation, so be it. They'll never understand that high inflation
\nwill make everybody's life, including the poor's more difficult.
\nFor them, the important thing is equitable distribution of
\nincome, and that has to be achieved, if necessary, at the expense
\nof economic growth.<\/p>\n
The next government, although politically more legitimate,
\nwill work within the multiparty environment, and so politically
\nwill be weak. As a coalition cabinet, they will not be strong.
\nThey would easily concede to populist demands \"to pick winners\"
\nat the expense of a strong macroeconomic foundation. It is
\ndoubtful that the next cabinet would have a strong economic team
\nlike in the previous cabinets. Economic policies and decisions
\ncould be disarrayed since they would be less coordinated and
\nwould depend on the individual minister, who likely would
\nrepresent the interests of his political party, rather than the
\ninterests of the country.<\/p>\n
As the implementation of populist policies could slow down
\neconomic reforms, it is necessary for the economists to have more
\ndialogue with the proponents of populist policies. Economists
\nshould be more active to convince them that Indonesia needs to
\ncontinue economic reforms, as failure to do this would be
\ndisastrous and would inflict much pain on the population,
\nincluding the poor, the very group the populist policies want to
\nhelp.<\/p>\n
The proponents of populist policies should be made to accept
\nthe fact that the flow of foreign investment is a crucial -- may
\nbe the most crucial -- element for economic recovery. The
\ngovernment and domestic private sectors are still struggling to
\nsurvive and can not be expected to make investments. The national
\nincome is shrinking as there has been no investment for some
\ntime. Like a household which has no income, what has been
\nconsumed by the Indonesian economy has been taken from current
\nassets which are dwindling, and could run out soon if there is no
\nreplenishment from investment. What has kept the Indonesian
\neconomy afloat is money coming from the IMF and the World Bank.<\/p>\n
Whether Indonesia will get out of the economic crisis and have
\nsustainable economic growth in the coming years will depend on
\nthe political will of the government to continue economic
\nreforms.<\/p>\n
Political leaders should realize that politics are not only
\nabout the allocation of benefits to different groups. Politics
\nare also about the allocation of sacrifice and pain to achieve a
\nbetter future. People would be more willing to endure hardships
\nand give chances to the government to improve the economy as long
\nas they could be convinced to trust the government. That is why
\nhaving a strong and credible government matters.<\/p>\n
The writer economic columnist, former deputy editor of SWA
\nbusiness magazine.<\/p>",
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