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.