Economist warns of worsening poverty as real incomes drop
Economist warns of worsening poverty as real incomes drop
JAKARTA (JP): American economist Steven R. Tabor warns that
Indonesia's food security is being threatened and nearly 18
million people, currently classified as being near poor, may fall
into absolute poverty, thereby increasing the number of those
living below the poverty line to more than 40 million.
Tabor, from the Economic Management Services International
based in Leiden, Holland, ties his observation to the combined
impact of the recent forest fires, the prolonged dry season and
the current macroeconomic distress.
Tabor, who has had many years of working experience in the
country, predicted here yesterday that Indonesia's macroeconomic
problems would continue for some time, depressing the real income
and purchasing power of the majority of the population.
He based his bearish outlook on the assumptions that the
economic problems in several Southeast and East Asian countries
have yet to be fully resolved and that the IMF-funded
stabilization package would tighten monetary and fiscal policies.
"Moreover, Indonesia's overheated property market has yet to
fully correct itself. And when it does correct itself, some
companies will find it difficult to service their bank loans,"
noted Tabor, who, in the 1980s, worked for several years here as
a consultant at the Ministry of Agriculture.
He argued that even if the US$23 billion IMF rescue package
for Indonesia does succeed, the country would end up with a very
large debt and this would make the economy highly vulnerable to
the whims of international creditors and currency speculators.
The economist, also a former consultant of the World Bank,
cited the upcoming transition of the national leadership as
another political factor which is raising great concern among
foreign investors.
Tabor is here for a few days as a guest of the Indonesian
Society of Agricultural Economics. He discussed yesterday
Indonesia's macroeconomic distress and its likely impact on the
country's food and agricultural sector at a seminar organized by
the Centre for Agricultural Policy Studies.
The three-hour meeting, which was opened by Beddu Amang,
Chairman of the society and chief of the National Logistics
Agency, and chaired by H.S. Dillon, the Executive Director of the
Centre, was attended by Indonesian and foreign economists.
Tabor observed that in the early phase of current
stabilization efforts, all sectors of the economy would initially
contract, as expenditures are reduced to bring real spending in
line with national income.
"The agriculture and other tradable sectors will suffer from
the fall in aggregate demand," he added.
Theoretically, according to Tabor, the steep depreciation of
the rupiah can benefit the agricultural sector which could export
its surplus output. But that would not likely be the case.
Excerpts
The following are the more salient points made by Tabor in his
presentation:
Viewed from supply-side expectations, the agricultural sector
would not likely be in a good position to tap the export market
due to several restraints.
Primary among these restraints is the negative impact of the
recent haze and drought on agricultural production. This, in
turn, would result in little excess production in the
agricultural sector.
Rice, formerly the growth engine, has been replaced by
plantation crops, horticulture, fisheries and livestock. The
problem, though, is that most of the largest investors in
plantation crops are also members of conglomerates who are now
suffering from the weakness in the banking system, tight
liquidity, falling property prices, short-term borrowing exposure
and a bearish stock market.
In the medium and long-term perspective, non-price variables
may exert an adverse impact. The most important among these non-
price variables are the intersectoral shift or irrigated land out
of agriculture, the development and diffusion of improved
technology, basic infrastructures, new investment into the
agribusiness sector and the availability of rural credit.
These factors are highly sensitive to the level and allocation
of public expenditures which are expected to slow down during the
stabilization period.
The fall in purchasing power (with per capita income falling
from the equivalent of US$1,200 before the rupiah depreciation to
$750 to $800) would certainly depress the demand for both basic
foods and high-value processed food products. This would be
especially burdensome as Indonesia relies partly on imports for
sugar and soybean and wholly for wheat.
As the world prices of sugar and wheat strengthen in the
coming months, it is doubtful that the government, faced with a
very tight budget, would continue to subsidize these commodities.
Hence, as subsidies would at least be reduced, the real prices
of these food commodities would rise at a time when the real
purchasing power of the majority of the population is being
eroded.
One also should keep in mind that a stabilization program
usually initially worsens, instead of improves, income
distribution. The poor and lower middle-income groups bear a
disproportionate share of the burden because they derive the bulk
of their income from their own labor.
The macroeconomic distress, besides increasing the number of
poor families, would likely reduce opportunities for income-
stabilization in low-income, rural households.
This condition raises food security concerns, especially
because off-farm income sources are bound to suffer as growth
slows and several sectors begin job layoffs.
Therefore, the present macroeconomic shock raises the need for
a reliable food relief system to supplement Bulog's operations in
order to help the very poor cope with a sudden income loss.
But such a system can be effective only if local officials do
away with their ordinate preoccupation with "prestige" and report
immediately any signs of food problems to provide an early
warning system.
An effective early warning system is especially needed because
the food insecurity tends to remain hidden from view as hungry
children rarely take to the streets with their plight. (vin)