Environmental concern still lacking

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.