Part 2 of 2 Rethinking development -- Pain or gain?

Part 2 of 2 Rethinking development -- Pain or gain?

Yanuar Nugroho, Director, The Business Watch Indonesia,
Surakarta, yanuar-n@unisosdem.org

A second lesson is that development must be sustainable and
environmentally sound. If economic development destroys the
earth's natural resource base in the process, it is self-
defeating. But, this is what is happening.

The soil is being depleted, with nearly two million hectares
of land worldwide eroded and some areas facing sharp losses in
productivity. One-fifth of all tropical forests have been
cleared, reaching a total loss of nearly 200 million hectares
between 1980 and 1995.

One-third of all terrestrial biodiversity, accounting for 1.4
percent of the earth's surface, are in vulnerable hot spots and
threatened with complete loss in the event of natural disasters
or further human encroachment.

Fifty-eight percent of the world's coral reefs and 34 percent
of fish species are at risk from human activities, 70 percent of
the world's commercial fisheries are fully exploited or
overexploited and experiencing declining yield, the World Bank
found.

These calamities are happening because economic solutions are
considered as the only way out for various problems affecting
humankind. While it is true that there exists some or many
successful economic approaches, it does not legitimate
application in all other cases -- such as debt.

Since the economic crisis struck in 1997, the rupiah devalued
by an actual 400 percent, making it impossible for the country to
pay its debt. The debt has therefore been rescheduled through the
groups of donors in the Paris Club and London Club.

Yet, one condition for rescheduling applies. It is the Letter
of Intent (LoI) with the International Monetary Fund (IMF), which
is also a precondition in getting support from other financial
institutions like the Consultative Group on Indonesia (CGI), the
Asian Development Bank and the World Bank.

Indonesia was thus registered for treatment with the
International Development Association, with the obligation to
follow IMF's prescription.

Together with the World Bank, the IMF embarked on a policy to
structurally adjust the Third World by deflating economies and
demanding a withdrawal of government, not only from public
enterprise but also from compassionate support of the basic
health and welfare of the most vulnerable. Exports to earn
foreign exchange were privileged over basic necessities, food
production and other goods for domestic use.

In 1986, the IMF set up its first formal Structural Adjustment
Facility, which was followed by the World Bank in 1989 with
contracted adjustment loans to 75 percent of the countries that
already had similar IMF loans in place.

The bank's conditions both extended and reinforced the IMF
prescription for financial liberalization and open markets. They
included privatizing state-owned enterprises, massive public
sector layoffs, cutting basic social services and subsidies on
basic foodstuffs, and reducing trade barriers.

In Indonesia, one of the policies imposed by the IMF is a
bailout for banks' debt, which transforms private debt into
public debt under the responsibility of the government, which has
to issue obligation letters.

This domestic debt, which is more than Rp 164.53 trillion, in
addition to debt-guarantee certificates worth more than Rp 53.77
trillion, most of which has been corrupted, has to be paid
annually. It is taken from an around 36 percent allocation of the
state budget, or the people's money.

Further, graphs from the World Bank and JP Morgan show that
the exchange rate of the rupiah fluctuates significantly, and
that the effective currency rate of most Asian countries under
IMF's control (e.g. Indonesia, Korea, the Philippines and
Thailand) has decreased. The exception in the region is
Malaysia, which is not under IMF supervision.

Rethinking development has long become urgent. Development is
not top-down steps devised behind closed doors of decision
makers. It must be comprehensive and holistic, in terms of:
o Taking account of the interrelationships among the different
elements of development strategies;
o Inclusion and participation, based on bringing together all the
shareholders in development -- civil society, local groups, NGOs,
private sector and the poor themselves-in order to foster trust
and sustainability;
o Combine a long-term perspective with a sharp focus on getting
early results on the ground;
o Crucial involvement of comprehensive partnerships and
coalitions for change.

Moreover, development should recognize that globalization and
trade expansion are good for growth, but that we must pay careful
attention to the social and societal effects of the transition to
participation in international markets.

Trade expansion alone is not a panacea, but needs to be seen
as a component of a wider development and poverty reduction
strategy-a strategy that must foster better human capital,
infrastructure and institutions if it is to pay off.

Let us look at following scenario of Indonesia in 2003, as
predicted by Consensus Economics (CE).
% change
2002*
2003+
2004+
GDP
3.4
3.6
4.1
Private consumption
5.1
3.9
4.5
Fixed Investment
-3.2
1.4
3.5
Industrial Production
3.8
4.1
5.1
Current account ($billion)
6.0
5.8
4.8
* Estimates + ForecastSource: Consensus Economics Inc.

CE expects that the Indonesian economy this year will grow by
3.6 percent, a little bit higher than last year's estimate of 3.4
percent, but still only about half the speed at which the economy
needs to grow to keep apace with the new workers entering the
labor market. As the world's fourth-most-populous country,
Indonesia will not make much of a dent in poverty with this
scenario.

Rethinking development must also to take into account the new
challenges represented by our globalizing world. It is not only
to act as a reminder about how globalization is transforming the
world economy but also to focus on what can be done to help
developing countries, especially the poorest and those most
burdened by debt.

This would allow them to make the most of the opportunities
offered by the world economic system, which has been simply
unjust and unfair to the poor over past few years. The question
now is whether we can do it, with an understanding of the grave
consequences if we do not.

The writer is also a lecturer of the Sahid University in
Surakarta and a researcher at Uni Sosial Demokrat, Jakarta.