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.