1. Hilman -- PRIME MINISTER JOHN HOWARD' S VISIT TO INDONESIA

1. Hilman -- PRIME MINISTER JOHN HOWARD' S VISIT TO INDONESIA
2 x 20 48 pt

Australia, RI still need
to overcome distrust

Hilman Adil
Research Professor
Indonesian Institute of Sciences (LIPI)
Jakarta

In an apparent effort to improve the troubled relationship
between Indonesia and Australia, the visit of Australia's Prime
Minister next month should be assessed in the wider context of
the global situation, and the Asia-Pacific region in particular.

In the space of several months after the crisis in East Timor
in 1999, Indonesian-Australian relations plunged to the lowest
point in its history. As Indonesia canceled official visits by
president B.J. Habibie and other officials and attacks on
Australia became common in the Indonesian media, the Australian
government came face-to-face with the consequences of soured
relations with its neighbor.

The business community raised concerns over the future of
bilateral trade. Some academics in Australia questioned the
government's commitment to the Southeast Asian region. Decision-
makers in Canberra pondered the added difficulties that an
openly- hostile Indonesia would add to Australia's already-
delicate regional diplomacy. Countries in Southeast Asia
questioned whether the worsening of Australia's relations with
Indonesia represented a shift in its regional policy.

The Foreign and Trade Policy White Paper, released in
September 1997,listed Indonesia as one of Australia's foremost
bilateral relationships, alongside the United States, China, and
Japan. Among officials, the media, and academics in both
countries, there have been many in both countries who have sought
to improve what has been a troubled relationship.

But despite these efforts, Australian attitudes towards
Indonesia are influenced by the fear of a foreign invasion that
has been consistent throughout the nation's history. The
historian Werner Levi once wrote: "In all Australian debates on
foreign relations there has always been an undertone of fear
which breaks out at the slightest provocation. Fear is the
leitmotif of Australian thinking on foreign policy and
Australians never lack a potential aggressor".

Descriptions of Indonesia's 200 million plus population, its
low levels of political and economic development and its status
as the world's largest Muslim nation especially after the attack
on the World Trade Center on Sept. 11 last year, all play deeply
on the Australian people fears of Asia.

The images and metaphors used to describe Indonesian society
and assumptions about differences in national character reflect a
persistent negative view of Indonesia. Or as Desmond Ball put it,
but not necessarily in a negative sense: "Although geography has
placed us next door to each other, we are in many significant
respects strangers". Prime Minister John Howard, asserted more
extremely that Australia is "a European, Western civilization
with strong links to North America", Australians no longer have
to fret about whether they are part of Asia.

They can participate in regional affairs on their own terms.
He concluded that a more muscular Australia, confident of its
values and identity and willing to fulfill the responsibility to
defending these values in the Southeast Asia region, has already
proved its bona fides through the East Timor intervention.

This view which forms the core of the "Howard Doctrine" and
was reflected in the 1999 white paper on defense. In an interview
published by The Bulletin on Sept. 20, 1999, he sees Australia
acting in a short of "deputy" capacity to the global policeman
role of the United States.

It was a time when Australia was in a self-congratulatory and
self-satisfied mode in the context of its East Timor peacekeeping
operations. On the issue whether Australia should see itself as
an Asia-Pacific country, the coalition government under Howard
differed in its orientation with previous Labor policy which
allegedly distance itself from its traditional allies,
particularly the United States.

The Howard government seems more inclined to agree with Samuel
Huntington who went so far as to suggest that Labor's policy was
in danger of turning Australia into a "torn country". According
to Huntington, Australia was disengaging from its Western
orientation and was moving into the Asian sphere.

From the perspective of his "clash of civilizations" thesis,
this meant that Australia was attempting to straddle the
civilization divide and such an approach was bound to bring
significant tensions and conflict.

It is not clear what Prime Minister Howard is trying to
accomplish during his visit, apart from an effort to improve the
troubled relationship between the two countries by removing some
misunderstandings in the past where the politics of identity
played an important role. The question is whether differences in
social-culture which is regarded as a problem could be overcome
by increasing high-level contacts and in deepening the
relationship, or in Gareth Evans' words, putting ballast in the
relationship.

The idea that understanding is related to the dissemination of
information to skeptical circles in both countries and regular
contacts between the political elites, ignores the emotional and
irrational aspects of the politics of identity. It also ignores
the ways in which domestic politics can dissipate the goodwill
built up in the bilateral relationship if situations prescribe
that political capital can be gained by attacking it or
manipulating it.

For example, if political parties or social organizations are
resorting to "patriotic" assertions of national identity.

The Prime Minister in his visit should therefore underline a
relationship which is based on shared interests and mutual
respect. These principles will provide the basis for a realistic
framework for the relationship between Indonesia and Australia,
and offer the best prospects to maximize shared economic
interests, advance both countries' political and strategic
interests, and manage differences in a sensible and practical
way.

These policies and actions is to show Indonesia that the
strategic outcomes the Howard government will pursue are
consistent with Indonesia developing a key role in regional,
economic, and security issues commensurate with its strategic
location in the region.

The foreign policy objective of any Indonesian government so
far has been the need to become a unified and internally stable
country, politically as well as economically which can produce a
more productive, realistic, and sustainable relationship between
the two countries.

There is, however, some cluster of opinion in Australia which
believes that an obstacle for Indonesia to achieve such a status
will be the serious internal problems it is facing, i.e
corruption, unemployment, and political instability. They also
argue that unless Indonesia can overcome these problems it is
difficult to expect a bright future for the country.

This cluster of opinion which would like to see a prosperous
and internally stable Indonesia argues that in pursuit of these
goals it will also alter the nature of its society and the
regional order.

They point to the growing interdependence and the continued
economic dynamism of the Asia-Pacific region, despite the Asian
monetary crisis, as the most direct route to attaining prosperity
and power. The incentives for Indonesia to foster these
interdependent links are through regimes promoting trade
liberalization, regional stability, and greater understanding.
Asia-Pacific institutions, like APEC, the ASEAN Regional Forum
and others, provided that no other crisis will occur, might all
gain in strength and effectiveness.

These interdependencies and the regimes that advance them are
judged to be more important than the sporadic tensions and
conflicts that flare up in the region.

2. Hilman -- How not to help the poor
1x 32 36 pt

A lesson in how not to help the poor

Larry Elliott
Guardian News Service
London

Everybody knows that the world isn't fair. Inequality is part
of the human condition. Always has been, always will be. What has
never really been clear is just how unequal life is. Now, thanks
to an economist at the World Bank, we do. The richest 50 million
people, huddled in Europe and North America, have the same income
as 2.7 billion poor people. The slice of the cake taken by one
percent is the same size as that handed to more than half of the
world's people.

These are mind boggling numbers. Well might Branko Milanovic,
the economist responsible for the study in the January 2002
Economic Journal, wonder whether this state of affairs is
sustainable. It's a rhetorical question, of course. For a while,
the rich may retreat into their fortresses but in the end an army
stuck in a fortress is weak not strong, vulnerable rather than
safe.
There is scant comfort to be drawn from the fact that the rich
are becoming spectacularly richer rather than the poor becoming
poorer in absolute terms, although this is true for a sizeable
minority, especially in sub-Saharan Africa. In a world that has
shrunk as a result of technology and the spread of the mass
media, it is relative poverty that is the danger. As Mr Milanovic
puts it, there must be serious doubt about how long such huge
inequalities can last when the poor can see the rich flaunting
their lifestyles on TV and in the movies.

The danger is that we assume that inequality on this scale is
a natural phenomenon, rather like a monsoon or a blizzard, and
that there is therefore nothing that we can or should do about
it. Policy choices have been made to organise the world in the
way that it is because that is deemed the way to maximise
utility.

The intellectual basis (such as it is) for trickle down
economics is that you might need to make societies more unequal
(but only in the short-term, you understand) in order to foster
the dynamism and flexibility that will eventually enrich us all.
Germany's problem, according to this view, is that it has tried
to be too equal, which is why a truckload of trickle down advice
is heading its way right now.
Extreme caution is needed here. Shock treatment didn't work in
Russia; it shortened male life expectancy by six years within a
decade. Shock treatment didn't work in Argentina; the country is
effectively bankrupt. Shock treatment works well in the
theoretical models of free-market ideologues but nowhere else.
You don't believe me? In that case, let's look at a real life
example. For our case study we need to head off to the Pacific
and go back in time to 1984. New Zealand was the perfect field
trial for extreme structural reform. It was small and
geographically separate, it has a single-house parliament
dominated by the executive and it was dosed up to the eyeballs
with all the toxins that the reformers said were poisoning
capitalism. Import controls, capital controls, strong trade
unions, a redistributive welfare state, a large state sector; New
Zealand was hooked on all the bad drugs.
Starting in 1984, the country's Labour government said that this
all had to change. It started by deregulating interest rates,
removing international capital restrictions, floating the
currency and removing agricultural subsidies. Having got the
taste for change, it then scrapped regulations on business,
abolished import quotas, enshrined price stability in law as the
sole object of monetary policy, forced workers into individual
contracts, announced that budget deficits would eventually be
banned, cut income taxes and slashed welfare benefits. This was
not a detox regime: it was cold turkey.
As a consequence of these reforms, inequality in New Zealand grew
more rapidly than in any other country. The government created an
underclass where none had existed before. But purged of its
addiction, it was hailed as the country that the rest of the west
should emulate, the role model that had dared to do what even Mrs
Thatcher would not, and was all the better for it. There was only
one problem with this argument. It was called Australia. Although
Australia is not quite as close to New Zealand as the rest of the
world thinks, it is relatively close and has strong cultural and
economic similarities. Australia has by no means turned its back
on economic reform in the past two decades, but it has been more
selective and a lot more gradualist in its approach.
The latest edition of Political Economy (Volume 14 number 1)
contains a fascinating comparison of the track records of the two
Australasian nations by Paul Dalziel, a New Zealand academic. His
first conclusion is that New Zealand's living standards have
suffered badly when compared with those in Australia.

Up until 1987, the two countries had a broadly similar growth
pattern, but the upshot of New Zealand's spell as an economics
laboratory mouse is that it has expanded much more slowly than
its neighbour, with significant effects on personal incomes.
Dalziel says that had output in New Zealand matched that in
Australia, annual per capita incomes in New Zealand would have
been almost NZ dollars 5,000 (US dollars 2,500) higher by 1998
than they actually were. The cumulative loss to each individual
was NZ dollars 30,000 (US dollars 15,000) and the cost to the
country was a chunky NZ dollars 114 billion (US dollars 57
billion).

Higher unemployment has always seen by the free-market
fundamentalists as a price worth paying for necessary structural
reforms, so Dalziel's second conclusion -- that New Zealand's
record on joblessness has worsened relative to Australia -- is
hardly a surprise. At the end of the 1970s, New Zealand had an
unemployment rate of 1.5 percent, only a quarter of that in
Australia. The gap closed by the end of the 1980s, and although
the jobless rate in New Zealand was lower than in Australia for
much of the 1990s, by 1998 both countries had similar levels of
unemployment -- 8 percent.
More surprising, perhaps, is that New Zealand's record on labour
productivity has been so rotten, despite the shake-out in the
labour market and the attack on trade unions. The notion that
slash and burn tactics allow managers to "clear out the dead
wood" and force through changes to improve efficiency is hard to
substantiate in the light of the fact that in the 1990s -- after
the deregulation of the labour market -- New Zealand's
productivity increased by 5.2 percentage points, while
Australia's rose by 21.9 percentage points.
In terms of inequality, New Zealand was in a class of its own. As
was true across the west, the rich were the real beneficiaries of
structural reform, with the top 10 percent of the income
distribution enjoying a 26.5 percent increase in real incomes
between 1983-4 and 1995-6. What was different about New Zealand
was that the poorest half of the population had less real
purchasing power at the end of this period, and the poorest
groups suffered the most.
This was not what the reformers in New Zealand had expected or
desired. The aim, set out in 1984, had been to tackle "an
unacceptable level of poverty". Dalziel concludes that the shock
treatment of the 1980s and 1990s did not achieve that core
objective, a view that is shared by New Zealand's current prime
minister, Helen Clark. She has raised the top rate of income tax,
increased pensions, reregulated the labour market and cut student
fees.
In a brutal sense, the New Zealand experiment was worthwhile. It
highlighted the ineffectiveness and risks of policies that
deliberately foster inequality. New Zealand has shown the world
how not to do it.