Economic growth and poverty

Economic growth and poverty

By T. Sima Gunawan

JAKARTA (JP): The development of Indonesia in the past three
decades has been amazing. No one can deny that, under the
leadership of President Soeharto, Indonesia has achieved
significant progress in many fields.

The government has successfully changed Indonesia from one of
the least developing countries in the world, to a fast-growing
country with an 8.3 percent economic growth per annum in the
Fifth Five Year Development Program (1989-1994). President
Soeharto said last week, in his state of the nation address,
that the country was expected to see an annual 7.1 percent real
economic growth in the Sixth Five Year Development Plan (1994-
1999).

It is projected that Indonesia will become one of the newly-
industrializing countries by the end of that period, in 1999,
with an income per capita of $1,280.

In 1969, when the government kicked off the First Long Term
National Development Plan, the income per capita was US$70. It
jumped to nearly $920 by the end of the program, in 1994.

Despite the fact that, in a way, technology in Indonesia is
behind some other Asian countries, it has successfully launched
the first-ever locally made double engine aircraft, the N250. It
is true that some government officials are corrupted and that the
managerial skills of Indonesian executives needs improvement, but
Indonesia is enjoying a success in its economic development.

Indonesia has every reason to keep growing. It still has
abundant natural resources -- even though they will not last
forever -- and the political situation is relatively stable. As
the fourth most populous country in the world, Indonesia does not
need to worry about manpower resources. Both local and foreign
investors must be happy with the fact that Indonesia has the
cheapest labor force in the world, with basic minimum wages
ranging from Rp 2,800 (US$1.22) to Rp 4,750 ($2.07) per day. If a
laborer works for at least six hours a day, this means that the
employer will have to pay no more than between Rp 466 ($0.20) and
Rp 791 ($0.35) per hour.

Last month more than 5,000 workers of PT Great River
Industries in Cibinong, Bogor, West Java, staged a strike,
demanding a minimum wage of Rp 4,600 a day, plus transportation
and allowances, which would bring their total take home pay to Rp
7,000 ($3.06) a day. But the company, a large garment factory
which makes noted brand names such as Arrow, Triumph and
Benetton, turned down the demand, saying that it paid the workers
Rp 4,675 -- Rp 75 more than the minimum wage in West Java.

Can one live decently with Rp 4,675 ($2.05) a day? It seems
impossible to make both ends meet on such a small amount of
money. But people survive.

As a matter of fact, poverty has become a lifestyle for some
people in this country.

President Soeharto said that the number of poor people
declined from 60 percent of the total population in 1970 to 14
percent today, which means 26 million.

The Central Bureau of Statistics, which conducts a survey to
monitor the number of poor people once every certain number of
years, found in 1994 that 8.7 million poor people live in urban
areas, and 17.2 million poor people in rural areas.

A person is considered poor if he or she consumes less than
2,100 calories per day. The poverty line is set at Rp 27,905
(US$12.2) per capita per month for people living in urban areas,
and Rp 18,244 ($8) for rural dwellers.

In an effort to combat poverty, President Soeharto launched a
program called Inpres IDT, or Presidential Instruction for
Villages Left Behind. Under this scheme, each of the 22,000
under-developed villages in the country receives Rp 20 million
($8,752).

But clearly, such a program alone is not enough.

The government needs to take more substantial steps to combat
poverty.

"Last year, from January to April, banking loans for the
development of luxury houses was Rp 2.7 trillion, compared to Rp
360 billion for the Villages Left Behind fund, allocated for the
1994-1995 fiscal year," Sritua Arief, a Salatiga-based economic
consultant, said in a recent seminar on people's economy.

He criticized the government for putting the wrong thing on
the priority scale, over-emphasizing the economic aspects at the
expense of the social elements.

Like Arief, several other experts accuse the government of
drafting policies on economy, which are disadvantageous to the
common people, widening the gap between the rich and the poor.

Loekman Soetrisno, a sociologist and expert on rural economics
from Gadjah Mada University, said the main obstacle in the
efforts to improve people's economy was the fact that the
government sided with big shots.

"We still remember how easy the Federation of Indonesian Batik
Cooperatives was discharged from the management of Kanindotex by
a consortium consisting of businessmen who have strong
connections with the government," he said.

In May, a consortium led by businessman Bambang Trihatmodjo,
President Soeharto's second son, took over the management of
troubled giant textile company Kanindotex from the federation.

Loekman also perceived that as long as the "connection law",
which allows the collusion between conglomerates and the
authorities, still exists, people will continue to lose.

The businesses of conglomerates grow fast because they enjoy
various facilities from the government, including soft-loans and
tax reimbursement.

Indonesia's number-one business tycoon Sudono Salim, also
known as Liem Sioe Liong, with an estimated US$3 billion in net
assets, is the richest ethnic Chinese in southeast Asia, the
Hong-Kong based Asiaweek reported in August last year. Liem's
business includes cement, finance, automotive and food
industries.

Swa business monthly reported in its March edition that the
second richest man in the country, Eka Tjipta Widjaja, boss of
the Sinar Mas Group, has assets of Rp 18 billion, while the
assets of Prayogo Pangestu, with its Barito Pacific Group, is Rp
16 billion. Mochtar Riyadi of the Lippo Group is in fourth place
with Rp 12 billion in assets.

The government has recently been under fire for issuing a
decision which allows large business groups to expand their
production capacities despite their leading position in the local
market. They are also allowed to deal in industrial activities
from the upstream to downstream levels.

Some analysts worry that the policy would be harmful to small
business groups. But Coordinating Minister for Industry and Trade
Hartarto said such a policy is essential to enable Indonesian
companies to compete in the era of trade globalization.

Minister of Industry Tunky Ariwibowo said that the government
has no objection to such monopolistic practices because the
consumers get advantages from the efficiency.

Denying that the policy would be disadvantageous to smaller
companies, Tunky said that they can work with big industries to
increase the competitiveness of Indonesian products overseas. He
said the big companies should assist the smaller business in
improving management skills and facilitating access to loans.

What is happening is different.

Christianto Wibisono, director of Indonesian Business Data,
said, "The economic policies are meant to develop large-scale
business with a hope that they will be able to compete with big
entrepreneurs from other countries.

"But what is happening is that they (the big companies) 'eat'
local smaller businesses," he said.

The government, obviously, does not have any intention to make
people suffer. "If the goal is good, but the mechanism is not
good, the result will not good either" Loekman Soetrisno said.