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.