Austerity and frugality

Austerity and frugality

Those who still remember the economic hardship of 1982 and
1985 when gross domestic product growth was merely 2 percent may
react cynically to the buzzwords -- austerity, frugality,
efficiency and clean government -- which were the central theme
of President Soeharto's instructions at the plenary cabinet
session on Wednesday.

The same instructions were supposed to be the main working
guidelines for the government in those difficult years, yet most
officials ignored them and continued business as usual. There was
no sense of being in a difficult situation, except within the
customs service which was stripped of its inspection authority in
1985 and was operationally replaced by the Geneva-based Societe
Generale de Surveillance company.

The basic question then is, what is the difference between the
situation in those two years and now that will make the latest
instructions sound more urgent and have a greater chance of being
fully implemented?

The main difference is striking. What is now at stake is not
merely the threat of an economic recession as it was in those two
years but an economic collapse as well. This may seem like an
exaggeration to many people and officials because the most
painful suffering will take place only next year when the
government, faced with a severely limited budget, will have to
raise food, electricity and fuel prices. More enterprises may
have to fold under their debt burden and the brunt of the
depressed domestic market demand, thereby further increasing the
ranks of the unemployed and aggravating the problems of many
banks.

Other differences which make the present crisis much more
threatening are the size of the country's accumulated foreign
debt and the rate of the rupiah's depreciation against the
American dollar. The government owes more than US$53 billion and
the private sector a preliminary estimated $65 billion. Of this,
about $30 billion is to mature within the next year. But the
actual total of the private sector's foreign debts may be even
much larger as the central bank is still making their inventory.
Worse still, the nation has never experienced so steep and fast a
fall (more than 55 percent) in the value of the rupiah as over
the past five months.

Adding to these grave problems are the huge bad credits
encumbering many banks and the persistently high volatility of
the rupiah. These make it almost impossible for businesses to
estimate production costs and negotiate new transactions.
Moreover, our economy will not be able to benefit greatly from
exports, despite the plunge in the rupiah, because many of our
major trading partners, notably Japan and South Korea, are also
mired in severe financial problems. Our exports' prospects will
become even bleaker if the situation in Japan worsens so much
that it affects economic growth in the United States, China and
Taiwan.

Addressing the economic crisis is being made even more
difficult and complex by the uncertainty surrounding the national
leadership succession. This is making foreign investors jittery
about the coming economic and political leadership.

True, the government and the private sector have to work
shoulder to shoulder to cope with the present crisis but it is
the government that should lead the drive because the persistent
volatility of the rupiah is currently being caused by an extreme
lack of public confidence in the government, the credibility and
consistency of its reform policies and its determination to build
up a clean, transparent and accountable bureaucracy.

Obviously, the process of regaining confidence should begin
with a realistic budget and the proper enforcement of the
President's instructions regarding austerity, frugality,
efficiency and clean government. This is crucial for stabilizing
the rupiah's exchange rate in a sustainable range, without which
most companies, notably the industrial enterprises which
contribute more than 75 percent of our exports, will find the
economic climate impossible to do business in.

Next, but no less important, on the agenda must be concrete
action by the country's political managers to show that they are
coping with the increasingly complex pains of the economic crisis
and consequently the disillusionment of those who suffer most.
Aggravation of the social consequences of the suffering must be
minimized but public support for the new package of painful
reforms to be taken will be obtained only when the restructuring
process is based on clearly spelled-out parameters and rules that
are seen as both objective and equitable.