A bitter medicine

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.