A rude ILO awakening

Monday's announcement of the findings of a report commissioned by the Jakarta office of the International Labor Organization (ILO) painted what is undoubtedly the grimmest picture of our economy yet published since the crisis began over one year ago.

The study, conducted by local and foreign experts, said that 5.4 million workers have been laid off this year, meaning that an average of 15,000 jobs are being lost every single day. Since unemployment is the chief source of poverty, the study concludes that at this rate, more and more people will be joining the ranks of the poor. By the ILO's estimate, the number of Indonesians living below the poverty line reached 75 million, or 37 percent of the population, in mid-1998. Without any significant turn around, this number will swell to 100 million people, or 48 percent of the population, by the end of this year, and 66 percent, or 140 million people, in 1999. This means that two out of every three Indonesians will be living in dire poverty next year.

A report as bleak as the ILO's is just what is needed to deliver a rude awakening to the government of President B.J. Habibie, which has yet to come to terms with the grim reality of the crisis. Instead of tending to the crisis, administration officials have been applauding themselves and indulging in mutual back-slapping since the International Monetary Fund (IMF) resumed disbursing its huge loans to the country and the rupiah showed signs of strengthening.

Either these officials are completely ignorant, or they are once again trying to deceive the public when they suggest that these trends reflect a return of international confidence in the Indonesian economy and the government. The IMF loans were disbursed precisely because the international community is fully aware of the gravity of the Indonesian crisis, while the rupiah strengthened because of heavy state intervention and because speculators were turning their attention to other currencies, particularly the Russian ruble.

In the meantime the government is continuing with many of its populist policies, wasting huge sums of public money on those who least need it, such as bank owners, middle class consumers and big traders, all of whom are reaping the benefits of the state bailout of ailing banks and the provision of subsidies on basic foodstuffs and fuel. The benefits of the much touted government social safety net programs, which are heavily dependent on foreign assistance for their funding, are not reaching their intended recipients.

Very few of the new policies introduced by the government have had any impact on the economy. The IMF loans and the strengthening of the rupiah have not done much to improve the situation either. Companies are still going under, workers are losing their jobs, and the price of basic foodstuffs is still rising. And, as the ILO report suggests, more people are being impoverished by this process.

The government's policy of maintaining high interest rates to prop up the rupiah exchange rate comes at the expense of less investment and the long term repercussions this brings with it. We are already seeing the impact of falling investment in the farming sector. The sharp drop in the nation's rice output has partly been caused by the reduced use of inputs such as fertilizer, which has now become unaffordable for most farmers. The full brunt of declining investment will be felt in the next few years. Recovery, if and when it comes, will be painfully slow if we allow the capital base of the economy to be run down.

The warnings presented in the ILO-commissioned report have been voiced by other experts in the past, but this study is more solid as it comes with statistical figures produced after detailed research. Given the government's inclination to listen more to outsiders than home-grown experts, we hope the report by ILO -- which is a United Nations agency -- once and for all injects the sense of crisis that has been missing in the administration all along. Only then can we expect the government to come up with rational policies to lift the country out of the crisis.