A bitter medicine

The next time a Cabinet minister remarks that the plunge of the rupiah is a mere monetary phenomenon with little consequence on the country's real economy, the entire nation ought to pray that he or she falls so expensively ill so as to be unable to afford the cost of medicine. For that is exactly the condition into which millions of Indonesia's poor have been condemned following this week's decision by the government to increase the prices of generic drugs by an average of 20 percent.

The reason given for the increase? The rupiah's exchange rate has fallen so hard that it becomes prohibitively expensive for the government to continue the subsidy on drug raw materials, most of which are imported and therefore denominated in foreign currency.

The nearly 40 percent depreciation of the rupiah during the 18 months that Abdurrahman has been in office -- from around Rp 7,000 to Rp 11,000/12,000 to the dollar -- has been a big blot in the Cabinet's economic record. In deterring their critics, the President and his economic team have camouflaged this failure by pointing out that the real economy, or what they fondly call the people's economy, continues to make impressive gains.

They pointed to a 4.8 percent growth of the gross domestic product in 2000, which indeed is a major achievement when compared to the 0 percent growth in 1999 and the 13 percent contraction in 1998. They also boasted that Indonesia's annual export revenues reached an all-time record of $60 billion in 2000, although no one has ever tried to explain why the national currency, which by conventional economic theory should have strengthened along with booming exports, went south instead.

As far as the President and his economic ministers were concerned, the rupiah's fall was nothing more than a monetary phenomenon, and that people's economic activities have continued regardless of what happens in the currency market.

They are right up to a point. Most parts of the country's economy are indeed insulated from the vagaries of the currency markets. For most people in this country, life continues (can it be otherwise?) whether the rupiah rises or falls.

But it is precisely this kind of smug attitude -- dismissing the serious implications of the rupiah's plunge on the economy and on the lives of ordinary people -- that makes the government sound downright arrogant. Repeated time and again, it strengthens the belief that the administration suffers from a lack of sense of crisis.

Instead of trying to resolve the problem and addressing the real issue about why confidence in the rupiah is weak, the President and his economic ministers have tried to talk their way out of the crisis. They have managed with some success to silence their critics. But after this week's increase in drug prices, they would be downright insensitive to the plight of the poor people if they continue to insist that the rupiah's plunge has little impact on the lives of ordinary people.

The currency crisis, if prolonged, soon ends being a mere monetary crisis and becomes a real crisis in every sense of the word, affecting the real economy, and, as in the case of the prices of medicine, hurting real people real bad.

The government had originally allocated funds to subsidize generic drugs widely used by the poor people because they are inexpensive. The subsidy comes in the form of covering the difference in the rupiah's exchange rate for the imported material for generic drugs. Working on the assumption that the rupiah would stabilize at Rp 7,000 to the dollar, the government in January allocated Rp 1,000 for every dollar that manufacturers of generic drugs spent on imported raw materials. But with the rupiah hovering between Rp 10,000 and Rp 12,000 for the past month, the burden became too much for the government. As of May 15, the government simply eliminated the subsidy.

We have yet to learn of the full impact of the increase in the prices of generic drugs, but memories of the 1998 monetary crisis are still fresh in our minds. Then, many people found prices of medicines, the generic as well as non-generic, beyond their reach. Millions of sick people, including children, were left untreated. It was this, among others, which prompted the government to launch the massive social safety net programs for the poor, with the help of foreign aid.

The full story of that human tragedy in the 1998 economic crisis has yet to be told, and probably never will be because it was eclipsed by the major political crisis at the time. But it was a tragedy that could have been avoided if the government then had managed the economy, including the currency, properly.

Similarly, the increase in the prices of generic drugs this week could, and should, have been averted had President Abdurrahman and his economic team properly addressed the problem of the national currency. Instead, as is almost always the case, the poor people end up taking the bitter medicine of the government's ineptitudeness.