Indonesia's economy not as bad as people think: Economist

Noted economist Dr. Mubyarto said recently that he had a different opinion about the state of Indonesia's economy to most mainstream economists. The following interview attempts to pinpoint those differences.

Question: You said you disagreed with other economists who are pessimistic about the Indonesian economy. How do you explain that?

Answer: Actually, such a difference of opinion has prevailed for a long time between myself and those economists. They always give pessimistic opinions on the Indonesian economy and those kinds of opinion tend to attract more listeners than optimistic opinions. I'm optimistic. That's why nobody listens to me.

In fact, not only Indonesian economists have pessimistic views on the matter. A foreign economist by the name of Prof. Hal Hill predicted in mid-1998 that Indonesia's economic growth would be minus 20 percent. In fact it was only minus 13.4 percent. For most of the regions outside Java island, the economic contraction was a low minus 3.9 percent on average.

What was ironical, the economist never did correct the mistake, nor did he admit it and explain why he had made it (the mistake).

Q: Why do you think they made such a mistake?

A: That was because the macro data (which they based the opinion on) said so. They based their analysis only on overconfident macro-deductive understanding and neglected the micro-inductive and empiric-ideological ones.

Besides, the poor political and security situation at the time was very supportive (for such an analysis).

When we look at Indonesia, we should see the whole territory, not only Jakarta province. In fact, Jakarta was the only province whose economic contraction reached minus 17 percent. Most of the regions outside Java island were between minus six and minus five percent.

My calculations show that the total economic contraction for the regions outside Java was minus four percent.

Therefore, the mistake was, I suppose, committed by my fellow economists themselves. They never allowed themselves a chance to go down to see the realities in the field.

They relied on the macro-data and looked only at Jakarta. It's true that many factories in Jakarta have yet to resume operations. Development was stagnant, and the value of the rupiah against the U.S. dollar kept declining.

Yet, they forget that people living in (remote) villages have nothing to do with the dollar exchange rate. Go to hell with the dollar exchange rate, we have nothing to do with it, villagers say. There they (most economists) are, viewing the national economic situation with reference to the modern sector only.

Q: Are you saying that the rupiah exchange rate has no direct connection with the people?

A: Do you think that we have to relate it to the people?

For Jakartan people, you may say that when the value of the dollar goes up, prices go up too, especially those in the imported commodities category.

But the popular economy in the villages has no imported components. The textile industry, for example, may have imported components but daily needs do not include cloth but rather food.

Food has no relation to the exchange rate of the rupiah. Even construction materials, such as sand and gravel, are all domestic commodities. Therefore, the ups and downs of the rupiah exchange rate have nothing to do with the grassroots people.

I once took 100 students of mine to Kulonprogo to talk with local people about what they think about the economic crisis. Half of the respondents said that they had heard about the crisis but had never personally felt its impact.

The other half said that the crisis had caused the prices of some staple foodstuffs such as sugar and cooking oil to go up. But, they made coconut sugar to substitute for sugarcane sugar, and used minyak klentik (traditional homemade coconut cooking oil) to substitute for branded cooking oil.

In other words, the impact of the crisis was there but they could quickly adapt themselves to it so that they were eventually no longer affected by it. Just come to the villages to see it for yourselves. There is no crisis there. They have forgotten it.

Q: But most people are still talking about the ongoing economic crisis. What do you think about it?

A: If they talk so, they are looking at things through the modern sector. And it's just a kind of political game. It's all about the interest of the elite who owe huge debts to the banks.

The BLBI (Bank Indonesia Liquidity Assistance) scheme has saved them, but that also means that they have bigger debts that they should pay. Therefore, they make the government their hostage to save them, to safeguard them from further loss, by creating the perception that if the government fails to help them the country will almost go bankrupt, the economy will fall to pieces. That's not true.

It's also nonsense to say that without major foreign investment, the Indonesian economy will never recover. It's complete nonsense.

They say so just to protect money that they have stashed abroad. They want (the government to give them) guarantees to bring their money back by themselves unilaterally setting various requirements.

Q: Does this mean that even without the IMF's help we would survive?

A: I say yes. It's time to reduce our foreign debt by as much as possible. We have been overborrowing for such a long time...even with no clear reason why we do so.

The 1998 Nobel Laureate Amartya Sen laughed at why Indonesians and other East Asians behaved as if they were facing a doomsday situation just because of a one-year economic crisis causing a drop of 4-5 percent or 10-13 percent (in growth).

Whereas, the fact is that they have enjoyed aggregate growth of 210 percent over the previous 30 years (with the assumption being growth of seven percent per year).

We have saved so much over these years. We have piled up wealth for 30 years. A drop in the economy of 13 percent will not make us die. We can still make use of the savings we amassed during the previous 30 years. (Sri Wahyuni)