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