Indonesia won't make progress without agriculture

Indonesia won't make progress without agriculture

Hyginus Hardoyo, Jakarta

Many have hopes that the next president of Indonesia, Susilo
Bambang Yudhoyono, who has been awarded a doctorate in
agricultural science, will work to promote the competitiveness of
the farm sector.

Susilo, a retired Army general who holds an MA degree from
Webster University in the United States, successfully defended
his dissertation on the development of rural areas and analysis
of fiscal policies at the Bogor Institute of Agriculture (IPB)
late last month.

In his thesis, Susilo asserted that fiscal and other policies,
including raising wages and lowering subsidies, could help boost
agricultural development and create new job opportunities.

This news is comforting because Susilo, as the next president,
should have the technical competence to analyze and resolve the
country's economic problems.

Susilo should have a better perspective on how to develop
agriculture, the principal source of livelihood for the majority
of people, with the support of a competitive manufacturing
industry.

Indonesia, basically an agrarian country, should command
strong comparative advantages in farm commodities. Unfortunately,
however, it remains a major importer of rice, sugar, soybean,
corn and many other food commodities.

There have long been two schools of thought about appropriate
development strategies for this country. One of them advocates
leapfrogging straight to industrialization at the expense of
agriculture, while the other is in favor of focusing development
on agriculture to support a competitive manufacturing sector.

The latter school argues that for a country like Indonesia,
the agricultural sector should be used as the basis for
supporting industrialization. The agricultural sector could
produce foodstuffs-- the basic needs of the people -- and at the
same time function as an instrument for price stabilization.

Indonesia should have a comparative advantage in the
plantation (tree-crop) industry to generate the foreign exchange
that is badly needed to import technology for the manufacturing
sector.

Based on these arguments, the second school argues that
industrialization in Indonesia will not succeed without a strong
agricultural sector.

During Soeharto's New Order era, agricultural development was
put at the top of development programs, the backbone of the
national economy. The adoption of this strategy temporarily ended
the debate and controversy over the direction of the country's
development path.

Among the remarkable advances achieved under this approach
were self-sufficiency in rice in 1984, albeit heavily subsidized.

However, with Indonesia's impressive economic growth
eventually driven mostly by manufacturing and services, the
position of agriculture in the economy declined, even though its
contribution to total output is still significant.

For example, the agriculture sector's share of gross domestic
product declined from over 50 percent of GDP in 1960 to only
about 20 percent in 1997, when the economic crisis erupted.

In general, however, agriculture was only able to grow based
on protectionism, government intervention and a heavy dose of
subsidies. Without these supports, agricultural development
slowed down and the bargaining power of farmers worsened
steadily.

Domestic farm commodities also become much less competitive.
So, as Indonesia has begun to open its markets in line with trade
liberalization under the auspices of the World Trade
Organization, local farm produce, such as rice and sugar, has
increasingly been edged out of the market.

However, when the financial crisis hit the country,
agriculture emerged as the savior of the economy, continuing to
grow and absorb jobless workers that were thrown out of bankrupt
manufacturing companies. As the costs of farm commodities are
denominated entirely in rupiah, farm produce has benefited
greatly from the steep depreciation of the local unit against the
American dollar.

This reinforced school of thought that supported agricultural
development, which had been neglected during the boom years of
manufacturing industry before 1997.

The agricultural sector, including fresh water and sea
fishing, and agrotourism, is now considered to be one of the
sectors with the most potential for accelerating economic growth.

As an agrarian country in which more than 50 percent of the labor
force still works in agriculture, Indonesia will not be able to
make much progress in improving public welfare without rapid
agricultural development.

However, without proper planning and strategic steps applied
consistently to boosting food production, Indonesia will continue
to be a major net importer, a situation that could threaten the
country's national security.

We have to realize that developed countries, which produce
large food surpluses, do not want Indonesia to be self-sufficient
in food. With its large population, Indonesia constitutes a large
market for heavily subsidized food products from the major
producing countries.

As things stand at the moment, most Indonesian farm products
are uncompetitive within the ASEAN Free Trade Area (AFTA).

In order to give agricultural development a clear direction,
the new government needs to launch an integrated development
strategy focused on food production.

Susilo has partly answered those challenges through his
promise to use agriculture as a platform for the economic
development in the country during his term in office.

It remains to be seen, however, whether Susilo will be able to
make Indonesia competitive in the agricultural sector.

The author is a staff writer for The Jakarta Post. He can be
contacted at hardoyo@thejakartapost.com