A rude ILO awakening

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.