Indonesia, Australia and overcoming the Asian crisis (2)
Indonesia, Australia and overcoming the Asian crisis (2)
This is the second of three articles based on former
Australian prime minister Paul J. Keating's lecture at the
University of New South Wales in March on the impact of the Asian
economic crisis on the region in his capacity as visiting
professor of public policy.
SYDNEY: Australia has to base its policy through the critical
period, in which Indonesia is trying hard to recover from its
current economic crisis, on one fundamental -- We stand with
Indonesia.
It is the same message that the Labor government sent to the
young republic during the revolution. We are with Indonesia
whatever happens now.
Australia cannot insulate itself from the future of the 202
million people who are our nearest Asian neighbors. And we should
not try to do so.
I know that the statement "We stand with Indonesia" begs some
important questions. Is standing with Indonesia the same thing as
standing with the Indonesian government? How exactly do we stand
with Indonesia? What are the practical things we can do? What is
the crossover point between helpful neighborliness and
counterproductive intrusiveness?
But these are exactly the questions we should be debating.
My point is that if you approach policy formulation from that
starting principle, you reach different conclusions from those
which follow if you begin from other points, like how can
Australia firewall itself from the impact of what is happening?
or how can Australia best bring about political and social change
in the region?
Well before I became prime minister I was concerned that
despite the long, hard efforts of committed people in both
countries to build friendship, the relationship between Australia
and Indonesia seemed little more than a thin foreign policy
veneer. I believed Australia faced serious dangers if it entered
the 21st century without trying to build a relationship of trust
and substance with our nearest Asian neighbor.
Significant misunderstandings persisted in the public mind on
both sides. Research we commissioned in 1994 showed that fewer
than one in five of the Indonesians surveyed saw Australia as a
modern or advanced society, only 2 percent were aware of
Australian manufactures and mining products, and a depressingly
large two-thirds believed the White Australia Policy was still in
operation.
On Australia's side, suspicion of Indonesia as a long-term
threat to the country persisted. It was fueled by an equal level
of ignorance about modern Indonesian society. Some in Australia
believed that geography made Indonesia a permanent threat to
their country.
What both President Soeharto and I tried to do was to
construct a framework for a relationship which would endure after
we had passed from the scene. I certainly valued my friendship
with him, but I was also conscious that our friendship would not
be enough to change the nature of the relationship. What we had
to do was to increase substantially the number of stake holders
in it.
So on my first visit to Jakarta as prime minister in 1992, we
established a new ministerial forum to meet every two years and
to bring together ministers from a whole range of economic and
social portfolios. We wanted the different areas of government to
discover new opportunities for cooperation.
On the defense side, we developed the Agreement on Maintaining
Security as a historic declaration of trust between us, a
recognition that Australia and Indonesia had common, not
conflicting, security interests in the region, and in appropriate
circumstances could respond through common measures.
We improved the foundations for trade and economic ties. A
major trade promotion in Jakarta in 1994 was attended by the
largest number of Australian businesspeople ever to attend a
trade fair abroad.
But we also know this had to be more than a government-to-
government relationship.
We worked to build up the number of people outside government
with a stake in the relationship, supporting Indonesian language
teaching and setting up the Australia-Indonesia Merdeka
Fellowship scheme to bring outstanding Indonesians to Australia
and send outstanding Australians to Indonesia in mid-career.
To underpin all this, I made six visits to Indonesia between
1992 and 1995. This was more than the total of all previous
visits by Australian prime ministers in the preceding 20 years.
But the depth of our accomplishments, and the work of so many
other Australians in and out of government over the past 50
years, will be tested in coming months.
In the policy now being developed, our aim has to be what will
cause the least pain to the Indonesian people and what will get
growth going again.
Australia's role is not to stand in judgment over Indonesia,
marking boxes with ticks and crosses and awarding points for
adherence to International Monetary Fund (IMF) packages before
deciding whether or not we should respond to the country's needs.
In this crisis, Australia needs to be a miner and distributor
of ideas.
This is not a job for the government but for business and
universities as well -- for anyone who can understand and
interpret what is going on. Over a period of nearly 50 years,
Australian academics and universities, beginning with people like
Sir John Crawford and Heinz Arndt, have maintained a level of
scholarship on Indonesia which is among the highest in the world.
Now is the time for contemporary Indonesian scholars to
contribute to the debate.
Australia cannot compete with the large economies in offering
multibillion dollar loans to Indonesia. But we should be a
principal coordinator of support and a major deliverer of
services and advice in areas like information, education, applied
systems and public administration.
We should be substantially increasing our support to enable
Indonesian students to continue studying in Australia during this
period.
Food will be critical in the coming months. I think the
government has its priorities right in looking to the
humanitarian task ahead. But Kim Beazley's proposal to broaden
this into a mini-Marshal Plan involving not only the World Bank
but the Food and Agricultural Organization and the World Food
Program, together with an international coalition of aid donors,
deserves the government's support.
Under an earlier coalition government, Australia was involved
in the mid-1960s in putting together the Inter-Governmental Group
on Indonesia (IGGI) to coordinate aid. Although the World Bank
now performs that task, there may be scope for an informal
grouping of governments to offer Indonesia support and advice in
the way IGGI originally did.
This is a regional, not just a national, crisis. Indonesia is
the epicenter of Southeast Asia and we need to work as closely as
possible with our other neighbors in trying to address the causes
and consequences of Indonesia's problems.
I cannot tell what will happen in Indonesia over the coming
months. But I am much more confident than many. We have been
treated to a good deal of coverage -- some of it shrill -- about
what lies ahead, including prophecies of the breakup of the
archipelago, or a renewal of the massacres of 1965, or flotillas
of refugees fleeing Java.
I can confidently offer advice about what we will not see.
Historical analogy is generally a lousy way of predicting the
future, and it is especially so in this case.
This is a very different Indonesia from the country of 1965
and 1966.
In the weeks and months ahead, my earnest advice to you is to
discard immediately any newspaper articles or television reports
you come across which include phrases about years of living
dangerously.
In some ways, the political stability over the years of the
New Order government has disguised to the outside world the speed
of change in Indonesia since 1966. The country has been
transformed from a rural to an industrial economy, from a village
to an urban society, from a largely illiterate society to one
where education is spread widely. Agriculture made up half the
economy in 1966. Now it is about 20 percent. A large middle class
of about 15 million has emerged.
And because of these achievements, Indonesia is no longer the
country it was. With its integration into the world economy have
come changing expectations about the kind of society it should
be.
Formally or informally, issues like the piece of pribumi
(indigenous) business in the economy, the long-term role of the
Armed Forces (ABRI) and whether it retains its dual function in
the security and political areas, ways of addressing differences
in the rates of development between the central and outer
islands, and means of getting greater public participation in
politics are all being debated in Indonesia.
So change is not going to stop now. It will continue just as
it has continued in other Asian societies and in our own. But it
is change which must come from within.
One great danger is that as the political and social
consequences of the economic downturn become clearer, Indonesia
and other countries of the region will turn inward as they
conclude that engagement with the world was the cause of their
problems, rather than the source of their growth. (And it is
worth recalling that despite the experience of the past 12
months, Asia in recent years has been the largest and fastest
surge of growth in human history).
Prime Minister Goh Chok Tong of Singapore has spoken of the
danger of a broadening of this sentiment to include a
reassessment of the region's relations with the West.
Voices in Asia are now being raised in favor of greater
autonomy. This is fine. Asian countries can be as autonomous as
they like. But they have to accept that a trade-off exists
between autonomy and growth. In a world revolutionized by
information technology, autonomy will not deliver enough jobs to
absorb the growing number of young job seekers.
And the domestic savings on which these economies have
depended will no longer be sufficient. They will continue to need
access to international financial markets and to the technology
and expertise which foreign direct investment can provide.
Asia does not have to play according to the Authorized
Economic Version or the Wall Street Model. There are obvious
cultural dimensions to the way Asian economies work, just as
there are to the American or German or Australian economies.
But Asia does have to play by the rules which facilitate
growth.
You cannot attract investment without an economic rate of
return and you cannot get the best sort of investment without
providing the opportunity to litigate your interests. The
challenge for these countries is to find ways of preserving their
cultural autonomy and the different social, and inevitably
financial, obligations which accompany it while improving
transparency.
If this danger of an inward looking Asia is to be avoided, the
best antidote to it will come through the policy prescriptions
and examples of the regional great powers -- Japan, China and the
United States.
In particular, the speed with which Asia emerges from
recession and the longer-term strategic impact of the crisis will
depend on:
* Whether Japan can stimulate its economy and use it to drive
growth elsewhere,
* Whether China can cope with its huge domestic challenges and
withstand the strong pressures it will face to devalue its own
currency,
* Whether the U.S. economy continues to grow and to remain
open to Asian exports.
Japan's response to this crisis so far has been deeply
disappointing. The original victim of the Asian economic crisis,
it is still mired in a long structural recession.
It is likely to see negative growth this year. At the same
time, its trade surplus rose 88 percent in February over the same
months a year ago. And its imports were down from every Asian
country.
One of the most effective ways through Asia's current problems
would be for Japan to resume its role as the regional engine of
growth and expand its capacity to absorb some of its neighbors'
exports.
Japan has generously contributed to the IMF packages and Prime
Minister Hashimoto has been personally involved in the problems
of Indonesia. But what has been absent is much of a sense of
Japan taking a leadership role in the region, generating ideas,
marshaling support and making decisions about its own economy in
full cognizance of their impact on its neighbors.
The Japanese government is expected to announce another fiscal
stimulus package tomorrow, but if it is to have any long-term
impact the more important issue will be what it does in they way
of basic structural reform.
When we look back at this crisis in coming years, I believe
the thing for which it will be remembered is not that Asian
economic growth suddenly stumbled. That was always going to
happen in one form or another. The historically significant thing
about it will be the way China handled the first region-wide
crisis since it reasserted its role as a great power.
China's neighbors have been looking carefully at the way it
responds to these current difficulties as a measure of the way it
will behave in future, as a test of the sort of power it will be.
By any measure, the results so far have been encouraging.
Although the massive devaluations of other Asian currencies
will impose new pressures on China's exports, cutting its growth
rate back to under 8 percent, the government has promised to
avoid any competitive devaluation of the yuan. It has justified
this decision precisely in terms of the harmful impact such
action would have on its neighbors.
China has instead adopted a policy of expanding domestic
consumption. It has begun a public works program equal to 1
percent of economic output.
It has also shown practical support for the other countries of
the region by participating in the IMF rescue packages.
But just as important has been the example China has provided.
It has demonstrated that the best way out of the crisis is by
continuing bold reform rather than retreating into introspection
and caution.
It has taken on the huge challenges of reforming the state-
owned enterprises and the banking system. It has begun the
largest restructuring of the machinery of government since 1949.
It has signaled new measures to encourage foreign investment in
China's infrastructure. On the political front, it has announced
that it will sign the International Covenant on Civil and
Political Rights.
No one, least of all President Jiang or Premier Zhu, would
underestimate the huge difficulties of keeping reform and growth
going in an economy of 1.2 billion people but China's handling of
its response to this crisis suggests that it is conscious of the
responsibilities of leadership and capable of acting beyond
narrowly defined national interests.
The United States has now had a period of prolonged economic
growth, part of a long upcycle beginning in 1993. This has been
fed by a stock market which can shift capital effectively and
efficiently out of unproductive sectors into productive sectors.
With luck, the Asian crisis will help the United States continue
to grow by feeding in deflationary effects.
However, virtually all the Asian economies will be basing
their strategies for economic recovery on even more competitive
exports. And the U.S. market is the one they will be looking to.
But the U.S. foreign trade deficit for the last three months
of 1997 was already the highest ever recorded and seems set to
grow. A further surge of Asian imports will fuel protectionist
sentiments in Congress. This will be happening at a difficult
point in the electoral cycle.
Although the administration has been heavily involved in
seeking solutions to the current economic crisis, it is hard in
the post-Cold War United States to find congressional or public
acknowledgement of the link between American prosperity and the
rest of the world, or indeed much interest in the outside world.
The forces standing in favor of confident U.S. multilateralism
seem to be losing ground.
A growing problem for the rest of us is that the cost to the
United States administration of securing U.S. public and
congressional support for international issues like United
Nations funding or the current IMF replenishment is increased
demands that these organizations demonstrate that they serve
specific American goals and ideals. This situation is untenable
over the long term for both the United States and the
international community.
Window: What both President Soeharto and I tried to do was to
construct a framework for a relationship which would endure after
we had passed from the scene. I certainly valued my friendship
with him, but I was also conscious that our friendship would not
be enough to change the nature of the relationship.