Indonesia really in transition?

Indonesia really in transition?

This is the first of two articles by Chris Manning,
who heads the Indonesia Project at The Australian National
University in Melbourne. He is also co-editor, with Peter van
Diermen, of Indonesia in Transition: Social Aspects of Reformasi
and Crisis.

MELBOURNE (JP): On June 13, the Centre for Strategic and
International Studies in Jakarta hosted an Indonesia "Update"
conference in cooperation with the Indonesia Project of the
Australian National University, to coincide with the launch of a
book titled Indonesia in Transition: Social Dimensions of
Reformasi and Crisis (ISEAS and ANU, 2000).

Minister of Maritime Exploration Sarwono Kusumaatmadja
launched the book and spoke about the special need for attention
to climate change, and the ongoing costs of policies which
devastated the environment during the Soeharto era.

Much of the discussion at the one day talks inevitably focused
on the capacity of the President Abdurrahman Wahid's
administration to deal with immediate challenges in the wake of
internal troubles faced in the last few months.

These included the continuing failure to resolve the Bank Bali
scandal and the standoff between the President and Bank Indonesia
governor Sjahril Sabirin, the State Logistics Agency (Bulog)
affair, the seeming inexplicable dismissal of former minister
Laksamana Sukardi and constant rumors of yet another Cabinet
reshuffle.

However, in line with the spirit of minister Sarwono's
address, more long-term concerns were not far from the surface.
Economist Djisman Simandjuntak perhaps best characterized the
current process of policy-making in Jakarta as "muddling
through".

Indeed he questioned whether Indonesia was really in a
transition, since the word implies both a beginning and an end-
point to an ongoing process.

Both at the Update conference held in Canberra in September
1999 and again in Jakarta, "muddling", by putting market oriented
economic reforms squarely on the back burner, has been seen by
many as an inevitable, even desirable.

It is argued that the new regime still has to tackle big
political and social reform issues that have been put on hold for
far too long.

What will Indonesia look like in 10 to 15 years time if indeed
the government continues to show mixed signals to potential
investors, and if inter-elite politics continues to dominate the
attention of the President and ministers (who might otherwise be
seriously engaged in confronting the issues of debt workouts,
bank restructuring and enticing a return of foreign and Chinese
business)?

One clear implication is that Indonesia will almost certainly
join the Philippines, not only as the poorer, but also the
lagging cousin in Southeast Asia, and indeed all of East Asia.

Even with strong oil and mineral prices, and a booming
agricultural sector, economic growth is unlikely to top 5 percent
in the near future, and may well only average about 2 percent to
3 percent at best.

This means virtually no growth in per capita terms. The
economic growth figure achieved under Corazon Aquino was 2
percent to 3 percent, even during the later Ramos reform years in
the Philippines in the late 1980s and 1990s.

As my colleague Hal Hill pointed out, this has left per capita
income no higher than in the early 1980s and a debt service ratio
of 40 percent of the public budget in that country.

In contrast, the Indonesian economy expanded at close to
triple this rate from 1970 to 1996, and at the same speed, or
indeed a little faster, than Malaysia and Thailand (albeit from a
much lower base). Growth under Soeharto was not pretty,
especially in the later stages.

But it reduced Indonesia's public debt and raised living
standards of most people several fold. In contrast, at the much
slower Filipino growth rate Indonesia would begin to fall even
further behind its more prosperous neighbors, both of which are
well on the path to recovery from the crisis.

Many social scientists will not be particularly perturbed by
such a prospect. Indeed they have long argued that economic
growth is over-rated as the key indicator of economic and,
implicitly, social progress -- especially with the memory still
fresh of extreme wealth and power amassed at the hands of the
Soeharto family during the rapid growth period in the past.

Commentator Aristides Katoppo argued at the Jakarta meeting
that slavish devotion to economic growth has been one factor
contributing to now unacceptable costs of environmental
degradation and social dislocation.

What then are the likely costs to ordinary Indonesians of the
economy "muddling" through, compared with what they have been
accustomed to in the past several decades? Three key points stand
out, in part informed by the experience of the Philippines (see,
for example, this year's World Bank report, The Philippines:
Growth with Equity).

First, even with a greatly strengthened civil society, the
majority of the Indonesian population will almost certainly not
benefit as much materially, and seem more likely to suffer
deprivation, compared to the Soeharto years.

Even with a more equitable distribution of the gains from
growth, it is hard to imagine that employment expansion will be
rapid enough to trigger real wage growth at all, and certainly
not to the extent that occurred in the 1990s prior to the crisis
(this is a telling lesson from the Philippine experience of slow
growth).

For the poorer 40 percent, this will mean less income for
education and health, as well as transport and other basic needs
necessary to help improve living standards.