Are we on the road to recovery?

By Sri Pamoedjo Rahardjo

JAKARTA (JP): The drastic downturn in the Indonesian economy has confounded many experts. Conflicting ideas on how to overcome the problem have in fact confused the public. While the economy has shown favorable net exports in its balance of payments, the country is still not able to attract foreign investors. Most of them opt to stay on the sidelines awaiting clearer signals about the administration's economic policies.

Despite the government's commitment to carrying out market- oriented reforms, the business community has not been impressed with its policies. Public investments alone cannot be relied upon to stimulate recovery. Although government spending has increased, this is due to rupiah depreciation and higher interest rates.

As the government can only keep its cash operations within prudent levels, this situation is not likely to encourage private sector investment due to a lack of business stimulus. Private investment, therefore, is still expected to remain sluggish in the next months. At the same time, unfortunately, assaults on human rights have surfaced precipitating a round of the politics of hate. Blaming, insulting, and slandering have made the social conditions unfavorable for the business community to flourish.

If the economic crisis is to be contained and reversed, to overcome further investment declines, it is imperative that the elements of this crisis be transformed into manageable challenges. History has taught us that success in the development of most countries has often been preceded by a crisis. During the crisis, innovative changes emerge to a united rallying point and healthy competition subsequently arises. The pressures emanating from the crisis should be just right to sustain, not destroy, the existing social structures. If the pressures are too immense, it can destroy the human capacity to adapt to desired changes. If the crisis is too austere, it can cause a break-up or disintegration of the existing social systems.

From selected countries that have overcome extreme economic difficulties, a common denominator becomes obvious, and that is the stability of the country's social structures.

To illustrate, Japan, a country with limited resources, experienced total destruction after World War II. Judging from the physical devastation at that time, it seemed an impossibility that Japan would recover in short period of time. Fortunately, the damage did not include the destruction of the Japanese social system. The role of the Emperor as the center of national pride and unity was intact. Had the Emperor been included as a war criminal, Japan may not have been able to raise itself and develop to become the leading world economy today, and a strong ally to the western world.

In fact, Japan was successful in achieving an economic recovery that is quite remarkable. In each cycle of development, a country faces new internal and external challenges, as well as internal disagreements which are essential to carrying out innovative approaches to reach higher levels of development.

Another illustration is Singapore. When the country decided to separate from the Federation of Malaysia, there was great doubt that it would survive. The country decided to maintain the British system and stability was attained. With strong discipline to maintain stability, the environment provided a conducive and fertile structure to develop its economic system. Had the founding fathers of Singapore chosen another system, the outcome may have been different.

As the economy takes-off, it adjusts to meet new challenges from within and outside, to reach a balance. With the stability of its social system maintained, the Singaporeans, transformed these challenges into business opportunities.

Furthermore, the state of Israel became a strong country militarily and economically, despite its neighbors' hostile attitude toward the state. Internal stability was maintained with a solid philosophy of Zionism at its foundation. On the contrary, the state of Yugoslavia has become a memory on the world map. The disintegration of Yugoslavia was due to the internal and external pressures which proved too great for its people to overcome. The crisis destroyed the spirit of unity and ruined Yugoslavia's social system.

The lessons learnt from these examples teach us that despite varying political systems, countries can become strong and prosperous when the basic unifying threads are maintained. The desired changes should not be so disruptive as to annihilate the existing culture.

How has the crisis effected Indonesia?

In its early stages, most Indonesians believed that the crisis would be temporary in nature. The government upheld the notion that an economic breakdown was not imminent because Indonesia's economic fundamentals were better than those of Thailand and Mexico. The assumptions at that time were true because the government's borrowings were still manageable, and the country's foreign reserves were at their healthiest. Then the crisis worsened and the local currency lost its value. The government was, in fact, caught by surprise with the unbelievably large private sector debts which had only accumulated in the last five years!

Attempts to stabilize the monetary situation have failed, because any attempt to correct the economy was viewed with suspicion by various-political groups which mushroomed in the country. Accommodative policies wavered back and forth and as a result, the country's economic condition rapidly deteriorated. Functionally, Indonesia has become bankrupt and hordes of its people are mired in poverty. At this point, the social, political and economic parameters have significantly changed. Even if the IMF rescue package is to be implemented now, it is like pouring a bucket of water on a forest fire.

Following the political upheaval which erupted in May this year, the image of Indonesia was tarnished irrevocably. The crisis has demoralized every level of Indonesian society. The government lost its magic touch and the curses locked in Pandora's Box exacted their toll. People have varying interpretations of reforms for democracy. Democracy is touted as complete unbridled freedom. Reform becomes synonymous with change at will.

Disagreements about unconditional change have been ridiculed as anti-reform. The value of respect and loyalty have disappeared from our cultural mores. Everybody feels betrayed. Mass-protests have become our daily fare. Increased unrest indicates that both government administrators and government critics have forgotten the elements that comprise a society. By a simple definition, society is a collection of individuals who feel bound together, who abide by special patterns of behavior for the group to interact over time. Interaction can happen if each member in the society understands the structure and each role in that particular structure.

The binding element of the New Order became unbalanced. The society witnessed a withering of national integrity among its leaders because the national climate was dominated by collusion, corruption, and nepotism. Subsequently, we witnessed the disintegration of national unity when the staunch supporters of the New Order began to withdraw their loyalty to the leader. The society bred die-hard supporters of the New Order who now take an opportunistic stand by slandering the regime. A new cop out term KKN, which collectively stands for collusion, corruption, and nepotism reared self-righteous groups both within and outside the government system that used the term to castigate any and all that ails society.

While the demand for transparency and freedom from corruption, collusion and nepotism (KKN) functions as a social control for public and business managers, the term has been indiscriminately used to slander every area of the leadership. It has made life more difficult and more chaotic for the grassroots population.

The new cop out term overshadows the old term of kontra revolusi or counter revolution (Sukarno era) and G-30S/PKI or the communist coup d'etat on Sept. 30, 1965 (Soeharto era). Even the $7.9 billion pledge from donors in the Consultative Group on Indonesia (CGI) to help speed up Indonesia's economy and put it back on track, will be useless because of uncertainties in the social and political climate.

The polemics have created new abuses, all in the name of reform and essentially threaten the threads that bind people together as a nation. Rightly or wrongly, the country's social life has been preoccupied by anger towards perceived wrongs and injustices. The country's economic life has been dominated by greed.

The country's political arena has been characterized by personal ambitions and vengeance. The successes of Indonesia in the past, as a stable country with hard working people and an example for the Third World, is gone. The last 30 years showed Indonesians as a united people. Unless the politics of slander and hatred stops, the country's disunity and instability will continue. The business community will not be willing to reinvest and the flight of capital will continue, until there is no more.

Disunity and negative images of our country have been followed by our neighbors with grave concern. The Filipinos blame us for creating urban traffic snarls in Manila because their Indonesian build-to-operate (BOT) elevated toll highway project is delayed. The Taiwanese condemn us for being too ethnocentric and harming our own Indonesians of Chinese descent. They have transferred their investments to other countries. The UN continues not to recognize East Timor as an integral part of the country. Before approving additional foreign assistance, the Americans are asking whether U.S. military assistance was used for recent alleged tortures and kidnappings. Other comments are too humbling to refute. The reputation of Indonesians as a kind, friendly and peaceful people has been swept away by winds of change sweeping the country.

In conclusion, disagreements and opposition are needed to generate innovative ideas. If the opposition becomes an end unto itself, the pressure for change becomes a tool of destruction to a societal structure which forms the foundation of a nation. Development strategies will be waylaid if socially divisive actions prevail. In this case, no amount of financial assistance will lead this country on its road to recovery. The price to the nation is painful and expensive. Are all Indonesians of varying sociopolitical and ethnic backgrounds, now on divergent paths, willing to travel together for societal and economic recovery?

The writer is a social and economic observer and former regional development bank officer.

Window: History has taught us that success in the development of most countries has often been preceded by a crisis. During the crisis, innovative changes emerge to a united rallying point and healthy competition subsequently arises.