Economic woes and the need for political reform

Economic woes and the need for political reform

By Hendardi

JAKARTA (JP): Economic interest and programs have given the
New and Old Order governments different political characters.

When it came to power in the latter half of the 1960s, the New
Order government claimed to be committed to pursuing high
economic growth with the support of political stability and solid
security.

Its idea of developing modern politics, however, went into
thin air in practice.

Political stability and solid security have enabled economic
development to proceed but there was no room for political
modernization, let alone democracy. Economic development has,
therefore, been undertaken at the expense of political
modernization and democracy.

Later, various interests placed a burden on the national
economy which developed into a crisis.

A decline in oil and gas prices on the world market, for
example, caused financial problems for the government in the
1980s due to decreases in state revenue. The inflow of foreign
capital, which used to play an important role in the country's
development programs, was limited, particularly due to the
introduction of the government's import substitution
industrialization program.

Another financial crisis rocked the national economy when
trillions of rupiah in credit scams at state and private banks
were exposed, climaxing with the free-fall of the rupiah to its
lowest level against the U.S. dollar.

The plummeting of the rupiah's exchange rate against the
dollar led to unusually adverse impacts, such as the collapse of
many companies, the scarcity of investment, the skyrocketing of
prices, the weakening of people's purchasing power, mass layoffs
and unemployment.

A political system dominated by its pursuit of stability has
become a burden on the national economic system, now hard hit by
a monetary crisis. Owing to this burden, political reform is
needed.

Claiming to be commanded by economic development, the New
Order government ignores political modernization and democracy.
Therefore, the political elite have been successful in gaining
exclusive power concentration with the help of political and
security stability.

It is this concentration of power in the hands of the state's
elite -- said to be necessary for high economic growth -- that
is burdensome to the economic system.

The following is a brief explanation of the existing political
system and how it has become an economic burden.

First, the relationship between the economy and politics which
has resulted in the concentration of wealth to just a handful of
people. Initially, this system relied on foreign capital and
offshore loans. However, in line with growth, the economic system
became more concentrated in the hands of national private circles
enjoying political facilities. This concentration is known as
business patronage, a phenomenon in which a political regime
supports the business groups close to it.

Second, the political regime in support of business patronage
has extended political facilities in the form of supply and
market monopolies, huge loans, subsidies and protection. The
result is a high-cost economy. The community needing upstream and
downstream products in such a monopolized sector will have to pay
high prices.

Third, formed in the business patronage system, the capital
invested in the monopolized sector has been spent uneconomically
and inefficiently. The import substitution industry is heavily
dependent on advanced industrialized countries and is but an
uncompetitive assembling industry.

Fourth, the business patronage system has become a source of
irregularities in the financial sector, which has encouraged
corruption practices in the state bureaucracy. According to many
surveys, Indonesia's New Order era ranks first in terms of
corruption.

The four points above show that the politics of a developing
national economy has given rise to a burden, which has eventually
worsened economic development. The fiscal crisis in the early
1980s and the present monetary crisis have been brought about by
the burden exerted by the economic politics being adopted.

This will continue to aggravate the monetary crisis. The
string that the International Monetary Fund (IMF) has attached to
its aid to Indonesia is that the government should implement
economic reform.

Economic reform needs political reform, especially considering
that the New Order has burdened the economic system. In the
absence of political reform, there will be no economic reform.
Unless political reform is launched, it is obvious that the
economic situation will continue to deteriorate. In the case of
Thailand, the Chaovalit regime has crumbled.

On the basis of the economic burden brought about by the
political system, economic reforms should include the following:

First, abolish business patronage. As a result, officials will
no longer serve as patrons. Investors will no longer establish
contacts with political officials, but will directly deal with
relevant ministries. The system which relies on "powerful
individuals" will be replaced by business laws.

Second, economic reform will open up business areas previously
closed. Monopolies will be scrapped. Commodity prices will
conform to social welfare and national economic development.
Capital owners will no longer be motivated by the desire to seek
the biggest profit possible in the shortest time.

Third, there will be a policy of tighter supervision.
Financial scandals involving officials should be brought to
court. Corruption, rife in the bureaucratic system, will be done
away with. The supervision policy will entail the rearrangement
of not only the function of the House of Representatives, the
State Audit Agency and the Attorney General's Office, but also
that of political parties, mass organizations, students and broad
sections of the community.

Tighter supervision can only become effective if the ruling on
the floating mass is abolished.

The writer is executive director of the Indonesian Legal Aid
and Human Rights Association.