Globalization means challenges

Globalization means challenges

The following article is based on Minister of Education and
Culture Juwono Sudarsono's keynote address at the international
seminar Toward Structural Reforms for Democratization in
Indonesia on Aug. 12 in Jakarta. The seminar was organized by the
Indonesian Institute of Sciences and the Ford Foundation.

JAKARTA: After 30 years of maintaining an average annual
growth rate of 6.5 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 $1300 -- the
unpredictable forces of global financial and capital markets
served to underscore Indonesia's imperative to establish strong
social, political and economic institutions.

The need for such institutions has been made even more
compelling in the light of Indonesia's efforts to recover from
the ongoing economic and monetary crises. It has also underscored
the importance of factoring the impact of globalization on
democratization in Indonesia.

The monetary and economic crises came about as a result of
three inopportune external circumstances which came to a head in
July/August 1997:

* The 50 percent strengthening of the United States dollar
against the Japanese yen since the Japanese bubble economy broke
in 1991. As a result, Japan began to regain its competitiveness
vis a vis other Asian economies. Malaysia's exports fell to 4
percent from 26 percent in 1995, Indonesia's plunged 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 as well as on wage productivity differentials.

* The 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 who had enjoyed advantages in securing markets
throughout the 1980s and early 1990s.

Largely because of the importance of the manufacturing sector
to the economy (constituting 40 percent of Indonesia's non-oil
export earnings) and to political stability (absorbing around 35
percent of our labor force, small and medium enterprises), these
differentials will determine the course of democratization in the
industrial and population centers of Sumatra and Java.

* Massive corporate loans (totaling roughly $60 billion from
Europe and Japan, $16 billion from North America) to largely non-
performing private banks and companies in Indonesia, without
adequate and effective control over amount, terms and target
allocation. These were clear cases of "too easy, too much, too
soon."

Foreign private lenders as well as domestic private borrowers
were both at fault to the extent that many of these loans were
secured through Chinese-Indonesian related banks and non-banking
institutions, the repayment of corporate and banking debt will
influence the level of intra-elite consensus and "horizontal
accountability" between political-economic groupings.

Four characteristics of the impact of globalization on the
prospects for democratization in Indonesia are:

(1) Providing the right state-market mix.

Foreign capital and their domestic corporate partners often
effectively decide the terms and conditions of local 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 loss of roughly 23 million low-paying jobs
within the span of the past six months.

The number of Indonesians living below the poverty line has
increased from 23 million in mid-1997 to about 80 million at the
end of July 1998. The "magic of the market" may work for those
who have ready access to capital, information and skills, but not
for those who lack education, skills and well-placed connections.

The paradox of democratic reform is that as state intervention
is reduced to allow for a higher degree of freedom and
efficiency, the bureaucracy's technical skills must be improved
in order to deliver the required public goods (enforceable legal
codes, improvement of human capital through selective vocational
skills and retraining programs) and to provide an effective
social safety net.

(The Indonesian government, assisted by the World Bank and the
Asian Development Bank is currently implementing a $400 million
three-year emergency program in primary and secondary education).

(2) Building consensus among business, labor and farmers.

There must be greater acknowledgment and attention to the
relationship between business and politics in Indonesia. Nowhere
is this more important in gauging the relative weight of power
between business and labor in cities and farmers in rural areas.

Without adequate economic institutional capacity to adjust to
accelerated change in the globalized world, unskilled workers and
poor farmers suffer from the application of new techniques and
innovative technology preferred by management.

If both economic reform and political democratization are to
remain sustainable, there must be regular broad-based
consultation and negotiation between business, labor and
agriculture.

These benchmark agreements are particularly important in
Indonesia's crisis-ridden economy since workers and peasants are
willing to accept painful adjustment provided the hardship is
shared across society.

Labor leaders are particularly irate that in an economy still
characterized by over-concentration of wealth and rent-seeking
(often linked to foreign corporate interests) workers are
burdened with "sacrifice without representation" and "suffering
without compensation".

Crafting coalitions between these conflicting interest groups
requires dedicated work in organization building and leadership
skills.

(3) Establishing an information infrastructure.

The argument for openness of information and communication are
that they provide the societal "operating system" through which a
more democratic Indonesian "software" provides transparency and
accountability.

These in turn help strengthen trust and cooperation through
open dialog and informed debate. As new patterns of power and
privilege are established through reform, the new political and
economic alignments must be openly explained and debated in order
to gain legitimacy and moral support.

Indonesian media, particularly in the private broadcasting
field, must provide the infrastructure of open dialog by striking
the right balance between information, entertainment and public
education.

They must avoid the tendency in many advanced industrial
nations to transfer the sovereignty of citizens to the
sovereignty of media moguls. The building of a civil society and
the civil economy can only be built on the principles of a true
civic media culture.

(4) Rebuilding "social capital".

From Aceh to Irian, from Sangir Talaud to East Timor, 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 civic
education have suffered from increased fragmentation as
individuals, groups and communities jostle for immediate economic
and material benefit, spurred by calls for "entrepreneurship" and
"the competitive spirit".

Greed replaced solidarity, particularly in volatile urban
concentrations. Inter-ethnic and inter-communal relations were
put under great strain as demagogues resort to populist rhetoric
tinged with scapegoatism against ethnic and religious minorities.
The tragedy affecting Indonesian citizens of Chinese descent last
May in Jakarta will take many years to overcome.

That is why there are 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 despair and massive cultural shock
for the majority of our poorer citizens. The economic downturn
over the past 12 months has underscored the seriousness of
unemployment among our youth, both in urban as well as in rural
areas.

Leaders from all walks of life -- politics, economics and
business, arts, culture and religion, the media, the
universities, science and technology, and the military -- who
equate stability with the status quo will doom themselves to
sterility.

For effective change to take place, democratic ideals must be
translated through organized collective behavior and
institutional capacity-building. There must be measured steps
toward enhancing stability in stages, rising to a higher plane
and reaching out to a broader base of economic, social and
cultural democratization.

There are no easy solutions, for the impacts of globalization
are invariably sudden, massive and turbulent. In an increasingly
competitive world, Indonesians from all walks of life must rise
to the challenges of global competition while at the same time
remain committed to our humanitarian values.

Only if Indonesia's leaders constantly develop and synthesize
these faculties of disciplined work and stirrings of the heart
can future generations in Indonesia remain equal to the rising
challenges of globalization and democratization now hurtling
across Asia and the Pacific as well as throughout the world.