Environmental concern still lacking
By Juwono Sudarsono
JAKARTA (JP): Even before the monetary and economic crises engulfed East Asia almost a year ago, Indonesia's problems in the political, economic and social spheres were formidable.
Despite success over the past 30 years in maintaining an average annual growth rate of 7 percent, reducing absolute poverty from 56 percent to 12 percent of the population, maintaining fundamentally sound macroeconomic policies (adequate reserves, low inflation, balanced budget, manageable current account deficits), transforming GDP per capita from US$70 to $1,300 the essentially unpredictable forces of global financial and capital markets ("casino capitalism") served to underscore the imperative to establish strong social, political and economic institutions that have been made even more compelling in light of Indonesia's efforts to recover from its present difficulties.
The crises came about as a result of three fortuitous external circumstances which began between May and July 1997.
1. Strengthening to 50 percent of the United States dollar against the Japanese yen since the bubble of the Japanese economy burst in 1991. As a result, Japan began to regain its competitiveness vis a vis other Asian economies; Malaysia's export fell to 4 percent from 26 percent in 1995, Indonesia's were down to 8.8 percent from 13 percent, and Thailand to 0.1 percent from 25 percent. ASEAN exports became uncompetitive, both on an exchange rate basis and on wage productivity differentials.
2. Devaluation of the Chinese currency by 35 percent in September 1994, resulting in its manufactured exports becoming much more competitive in Japan, Europe and North America. This adversely affected ASEAN, especially Indonesian manufacturers which had enjoyed advantages in securing markets throughout the 1980s and early 1990s.
3. Massive corporate loans (totaling roughly $56 billion from Europe and Japan, $16 billion from North America) to largely nonperforming private banks and companies in Indonesia, without adequate and effective controls over amounts, terms and target allocations. It was a clear case of "too easy, too much, to soon". Foreign private lenders as well as domestic private borrowers were both at fault.
The comparative advantages Indonesia enjoyed from three waves of manufacturing relocation from Japan and the East Asian tigers in the 1970s and 1980s was eroded by the rise of competitiveness from China, Vietnam and India.
In industries involving the use of large-scale labor, the price and wage competition became immediately regional as well as global. The margins of functional productivity and value-added efficiency become more important than cost-cutting geographical advantage.
The instantaneous and unpredictable nature of globalized capital and money markets underlined the need to establish rule- based institutions that provide consistency and transparency in law, administration and policy-making.
Five issues characterize the impact of globalization in Indonesia:
1. Income inequality. Without an adequate capacity on the part of economic institutions to cope with accelerated change in an increasingly integrated financial and capital markets, unskilled workers suffer from the application of new management techniques and innovate technology. Overall, unskilled workers are marginalized by globalization. Despite Indonesia's efforts at maintaining a steady balance among equity, growth and political stability, the pressures of distorted development -- particularly in the midst of the present crises -- were only too apparent.
2. Decreasing jobs and wages. Foreign corporations and local partners often effectively decide terms and conditions for workers. They can also apply the threat of relocation of production to other sites or countries to bargain down wages and benefits. The destruction of governmental and corporate wealth in Indonesia led to the dismissal of roughly 13 million low-paying jobs within the past six months. The "magic of the market" works for those who have ready access to capital, information and skills.
3. Environmental damage. Economic growth has largely relied on conventional notions of development, resulting in the tearing down of forests, overfishing, depletion of minerals and poisoning of land by agrichemicals and soil erosion. The recent forest fires in Kalimantan destroyed roughly 480,000 hectares of tropical forest, with estimates of losses at US$970 million. Of primary importance in the nation's action agenda is a greater need for a complete transformation in the outlook and behavior in the way that all Indonesians, whatever their social station, treat the environment.
4. Loss of social capital. Many rural and urban communities are bypassed or undermined by the effects of globalization. Social units and networks that for decades provided a resilient sense of community, social peace and informal education have suffered from increased fragmentation as individuals, groups and communities jostle for immediate economic and material gain, spurred by calls for "risk-taking entrepreneurship". Greed replaces solidarity, particularly in vulnerable urban concentrations. Interethnic and intercommunal relations are put under great strain as demagogues resort to populist rhetoric tinged with scapegoatism against minorities.
5. Decline in political sovereignty. The increased role of foreign and domestic private firms in determining the national policies of governments serve to stimulate the pervasive power of powerful interests groups in maintaining legitimacy through the power of money. National parliaments and the executive branch of governance face powerful monetary and material temptations, that serve to influence policies. The recent government's agreements with the IMF serve to underline the vulnerability of the Indonesian state to external pressure through opening the Indonesia economy to foreign capital investment and service on behalf of deregulation.
That is why there are increased concerns that despite the opportunities offered by globalization -- greater freedom and more prosperity for skilled professionals -- those very forces can also result in economic disadvantage, social disruption and massive culture shock for the majority of our poorer citizens.
Striking laborers in the manufacturing industries, endless disputes over land titles with the inflow of capital for infrastructure project and large-scale underemployment among youth will remain formidable challenges in the years ahead.
Leaders from all walks of life -- politics, economics and business, arts, culture and religion, the media, the universities, science-technology, the military -- who equate stability with the status quo will doom themselves to sterility.
But for effective change to take place, there must be measured steps toward enhancing stability in stages, rising to a higher plane and reaching out toward a broader base of economic, social and cultural empowerment. There are no easy solutions.
The evolving changes in the regional and global situation demand that Indonesian leaders constantly calibrate the forces of political, economic and cultural changes that ultimately are crucial in determining the nation's comparative and competitive advantages.
The intertwining of domestic and international interaction must be continuously appraised. The task of present and succeeding generation in Indonesia will be to remain equal to the rising forces of globalization hurtling across Asia and the Pacific as well as throughout the world.
The writer is a former state minister of environment. He is minister of education and culture in the Development Reform Cabinet set up yesterday.
Window: The comparative advantages Indonesia enjoyed from three waves of manufacturing relocation from Japan and the East Asian tigers in the 1970s and 1980s was eroded by the rise of competitiveness from China, Vietnam and India.