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.