Future hurdles in development

Future hurdles in development

By Rizal Ramli

JAKARTA: The New Order has been successful in the economic
field. But most political criticism touches on public welfare or
democracy. But in the economy too, something is happening which I
refer to as the diminishing benefit. What was an early economic
success has became a problem which further decreases the benefits
of the present status quo. If this trend continues, more errors
of judgment, or decisions made on the basis of misinformation,
incomplete information, or too many decisions will be taken for
reasons of vested interest.

Many policies and economic regulations have therefore not been
fully implemented.

In democratic countries, public interest and public policy
are closely related. In the economic sector, public policy should
reflect public and national interest. But an increasing number of
cases fail to mirror the public's interests because of outside
and internal interventions based on private interests.

One example is the second Freeport negotiations in 1991 over a
work contract, which was intervened by private interests close to
decision makers and undermined national interest. The result of
their act was that Indonesians in Freeport were meted minimal
share owning rights. If renegotiation resumes normally, and is
rightfully run in the name of national interest, Indonesia could
expect to earn additional income from shares, royalties and
taxes, which would aid presidential programs like Inpres Desa
Tertinggal (presidential instruction for assistance to
impoverished villages) for the next 50 years (1991-2041).

There are other similar cases, billed as markups and
overpricing in development projects which the mass media has
frequently exposed to the public.

Questions have been raised about the identity of people behind
the curtain and people benefiting from these overpriced projects,
which could become a major economic problem if responsibility has
to be assumed for these projects. Investigations would promptly
reveal that sponsors of several overpriced projects are often
connected to parties in power. This shows that a large number of
companies with private interests are disguised as supporters of
public policy.

A more important question is, what can we do to restore the
connection between public policy and national interest,
particularly the relation between public interest and public
policy in the economy?

The case repeats itself on a local level. It came to light
when a University of Indonesia lecturer of social and political
sciences researched the skills of House of Representatives members. Logic reasoning dictates that if House representatives
were to represent the public's interest, they should cover
provincial rules to increase public security, a safe environment
for citizens, hygiene, and other matters benefiting the economic
welfare and quality of life of citizens.

But House representatives focused on land trading (ruilslag).
When asked who was behind this policy, they suggested there was a
small group behind its legitimation and public policy.

From these cases, it can be concluded that there is no
connection between local public interest (economic interest of
the Jakarta special province) and local policy (House
representatives). On the contrary, the opposite is true.

A decoupling process between public interest and public policy
is taking place on both national and local levels. The process is
increasing in intensity due to a growing power centralization in
the economy and the political arena. Decisions are increasingly
being made on the basis of distorted information and diversions
of interest. Growing errors of judgment are therefore not
surprising in public interest sectors.

It is this decoupling process that widens the gap between
people's expectations and the prevailing public policy. In the
end, a decrease in legitimation and policy makers' credibility
can hardly be avoided.

Further questions the Indonesian middle-class should consider
are: what is the most important economic challenge facing the
future cabinet? There are five major challenges to be tackled.

If the future cabinet is capable of handling these challenges,
the decoupling process and the legitimation gap due to public
policies should narrow. But if the future cabinet falls short in
arriving at a solution for these problems, the gap between policy
makers and the people would only widen.

Two of five major challenges are connected with the short-term
macro economy, while the other three are of medium or long-term
structure.

The first entails the foreign loan burden, which is proven too
burdensome. Whoever would be in power later, or whoever might be
in the cabinet, would have to brave the problem of stupendous
loan figures. If these loans could be settled, the national
economy would be boosted considerably.

It is said that 30 percent of development funds, including
foreign loans, are lost because of widespread leaks. On
administrative levels I and II, a larger percentage is even
estimated. Many officials of multilateral organizations such as
the World Bank or the Asian Development Bank (ADB), privately
admitted the leaks if questioned. But they were reluctant to
admit these facts openly.

We need to have more courage in the future to ensure that all
foreign loans will be paid in full, as long as they are spent on
the interest of the people. We should also be courageous enough
to reject the payment of unaccountable funds. In various plans
and supervisions of fund disbursements, the World Bank or other
multilateral foundations were involved.

We could try this approach because evaluation techniques and
the law in donor countries does not permit or allow leaks of
taxable funds. This could lessen huge foreign loans and give the nation more room to move.

Second, there is an efficiency and marketing problem. If we
compared the Indonesian economy today with 25 years ago, I
believe everyone would recognize the major achievements this
country has made. But if we were to make a cross-country
comparison on every level, Indonesia would be found trailing, for
instance, behind Malaysia, Singapore, Taiwan, or South Korea.

This situation calls for change.

Indonesia's challenges are not found in the past, and
therefore we should not compare our skills in the past with those
today. Comparisons like this do not fail to fill us with pride.
But it's high time we shed these views. We should keep a cool
head when we face competitors of Southeast Asia and East Asia. If
we used the approach of cross-country comparison, we would
certainly encounter better ways to improve our skills for the
national economy. This is one problem for the future cabinet to
solve.

Third, there is the long-term challenge of a structural
nature, where increased social imbalance does not necessarily
imply poverty. Based on statistical information, absolute poverty
is waning. Proof of this can be observed from consumption figures
and other indicators of success. But social imbalance seems to be
widening.

If the imbalance was due to competition or hard work, of which
achievers, rich people, and failures are made, people would find
it acceptable, even if the situation warranted immediate
improvement.

But if we had to analyze the main cause of disharmony, the
distortion of government policies might come to light because of
preferential treatment to an exclusive group. This is
unacceptable. Disharmony is not a result of competition, skill,
or hard work. The cause has to be examined in a group of
businesspeople who were privileged and were constantly given
special treatment. The difference between these businesspeople
and the average merchandiser is far and wide.

To resist this inharmonious trend, the distortion of economic
policies and privileges extended to the same businesspeople,
should cease. If a change of this kind can be enforced,
disharmony would be reduced considerably. A more systematic
effort might be necessary to shape a positive policy to
redistribute the benefits of economic growth.

Fourth, problems stemming from regional disharmony are also
widening. To this day, the government has no comprehensive
strategy to stave off regional disharmony. Supporters and
regional resources to relieve regional disharmony are also
diminishing.

If we looked closely at one major income source
in 25 years of the New Order, we would discover that oil and gas
sources have almost depleted. The forests will follow soon. A
recent study strongly suggested that Indonesia should train its
eyes on a future in the eastern part of the country, whose
resources, forests, copper and other minerals are still not
widely exploited.

With these regional potentials in mind, systematic steps
should be taken to ward off regional discord.

Regional discord is caused by misconstrued policies. The
following is one example. In the past, East Nusa Tenggara and
West Nusa Tenggara farmers were allowed to export cattle directly
to Hong Kong and Singapore at very lucrative prices. But in
recent years, the direct export of cattle to these destinations
has no longer been permitted, and farmers are required to comply
with new trade rules. For this reason, farmers in these parts of
the archipelago received less than they were entitled to.

There are many other similar cases throughout Indonesia.
Regional trade distortion of this kind actually reduces the
opportunities and trade terms of Indonesia's regions and
provinces. This only increases the focus on Jakarta's powerful
economy.

Fifth, the problem of ethnic discord. Discord among ethnic
races often erupts in the form of social outbursts. I believe
that a peaceful solution can be found, a concept of gradual
approach to the problem, so that cross-ethnic discord will be
reduced. It should certainly not be solved using the approach of
one minister who claimed to have done a great deal for the
economy of the indigenous people. While the minister was
defending the interests of personal friends with an indigenous
lineage, other indigenous persons were treated poorly. I do not
believe that we need to nurture koncoisme (clique system). The
method is outdated and attracts criticism from an increasingly
intelligent public. What we need is a systematic conception in
the form of affirmative policy to suppress economic discord.

These are the five challenges of the future cabinet. If they
were able to provide an answer, the growth of lawful discord and
disharmony stemming from disappointed expectations, would be
reduced. A political responsive format would certainly be
necessary to meet these challenges. Although I am not a political
expert, I would like to reciprocate the emotional, intellectual
and political union of institutionalized politics, to the voting
public. This is the substance of democracy.

Democracy should bridge public interest and public policy.
This bridge would be very different from when technocrats swayed
power, and when nearly all economic policies were made with the
help of foreign consultants.

Admittedly, Indonesian economists were involved at the time,
but working behind the scenes was an invisible team whose
existence was not known to the public or the press.

This lasted for 25 years of the New Order. In recent years, a
shuffle has taken place but it has not changed the
characteristics nor the processes of public policy making which
is still in the hands of an elite few.

If we desire a solution to these challenges, a bridge is
needed to connect national and public interest and public policy.
The bridge I have in mind is a political plan, more democratic
and responsive to narrow the gap between public expectations and
public policy. If this can be done in the years 1998-2003, the
credibility and legitimation of decision makers can be stepped
up.

This article is an excerpt from a paper presented recently at
a Golkar discussion on the Broad Outlines on State Policy, in
Medan. Rizal Ramli is Director of the Econit Advisory Group,
based in Jakarta.

Window: A decoupling process between public interest and public
policy is taking place on both national and local levels. The
process is increasing in intensity due to a growing power
centralization in the economy and the political arena. Decisions
are increasingly being made on the basis of distorted information
and diversions of interest. Growing errors of judgment are
therefore not surprising in public interest sectors.