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.