Putting people first in the development program

By Elwin Tobing

BOSTON, United States (JP): The new president and vice president have been elected, and the new Cabinet inaugurated. The debate is over about the selection of ministers. All is fixed and, as the President said, "there will be no reshuffle".

The agenda is set for the new government to tackle. But one nagging question remains: What is the agenda?

We know we are experiencing serious problems of national unity and the economy. The government's foreign debt has risen to nearly US$15 billion during the monetary crisis, bringing the total public debt to nearly $80 billion. It creates not only a greater burden on future generations, but undermines the willingness of the international community to provide assistance to Indonesia.

Private foreign debt has soared to $69 billion while negotiations with debtors, under a program supported by the World Bank involving more than $23 billion in outstanding foreign debts, achieved little. It has only reached agreements in principal for around $3 billion. The road ahead is still arduous, especially if the rupiah remains around the level of 7,000 to the greenback.

The bank restructuring program poses another serious problem. Although it has made tremendous progress with the closing of insolvent banks, our banking system is still incapable of channeling credits into productive investment in the real sector.

The picture of the real economy is not promising either. Foreign investment approvals fell by nearly 61 percent in 1998, from $33 billion in 1997 to $13 billion. The unemployment rate is now around 20 percent, the highest rate in the last 30 years. Interest rates are locked in the range of 25 percent to 30 percent, a range that is still too risky for the business sector. The inflation rate of 25 percent is high enough to disrupt household budgets.

The threat of disintegration is mostly caused by the mismanagement of economic development during New Order era. A centralized economic policy conducted during the era not only failed to elevate the nation's standard of living but also created serious regional disparities. In 1997, for instance, per capita income in Jakarta was nine-fold that of Southeast Sulawesi. Problems of integration -- of keeping the country together as one -- cannot be merely attributed to social and cultural factors, but must take into account the economic factor.

Consequently, our task now is to put the economy back on track with an average growth rate of 6 percent per year, an inflation rate of less than 10 percent per year and so forth. To realize these sound aggregate economic numbers, however, we should not neglect a more fundamental aspect: the role of people in development.

The most difficult thing in life is not to explain a supremely complex problem, but to discover the obvious. It took a Newton to question why an apple falls downward rather than upward to discover the Law of Gravity. It took a Keynes to discover that what is considered economically rational behavior at the disaggregate level may not be all that rational at the aggregate level, and vice versa, which led him to write his General Theory.

After many decades of development, we are rediscovering that people are both the subject and the object of economic development. This simple truth often becomes obscured because we are used to talking in abstractions and aggregate numbers.

When we talk about subjects of economic development, we, either as economists, businesspeople or bureaucrats, often talk about investment capital, savings, exports, imports and GDP. Human beings, who in fact are also the planners of development, become a mere abstraction and we tend to treat these as almost residual elements.

The lack of recognition given to humans as the object of development is even more obvious. It is widely conceived that the object of economic development is to achieve high economic growth. A country with higher growth is associated with a better standard of living.

Only recently has the attention to humans become central in economic development. It has accompanied the new endogenous growth theory pioneered by Paul Romer from the University of California at Berkeley, who underlines the role of knowledge in growth, and Robert Lucas, the 1995 Noble prize winner in economics, who stresses the importance of human capital in development. Yet, there has rarely been any consistent and comprehensive analysis of how to integrate human beings into development as both subject and object.

The integration of people into development should bring some fundamental implications in our economic plan. Unlike traditional plans that place top priority on capital investment, it would start with human accounting. What is the profile of our human resources: their education levels, skills, income distribution and health conditions? What is the urban-rural distribution, demographic transition and level of human development? What are cultural and social forces that motivate people in every province?

We cannot plan for people if we start with imperfect knowledge about them. Our human development data thus far is often treated secondarily after financial and aggregate economic data such as GDP growth, interest rates, etc.

The number of people living in poverty has jumped from 17 million in 1996 to 50 million in 1998, according to data released by the Central Bureau of Statistics (CBS) in 1998. The total population without access to health services, safe water and sanitation are 39 million, 73 million and 94 millions respectively. Around 20 million adults are illiterate and 9 million children under five are malnourished, according to the 1999 volume of the Human Development Report.

Our labor force quality is even more dismal. More than 65 percent of our labor force acquire only an elementary school education or less (CBS, 1998).

Having recognized and realized our human resources profiles, we then must express our development plan in terms of basic human needs. This means that there will have to be a clear exposition of the minimum targets for average nutrition, education and health levels, housing and transport. The basic needs then will have to be built into production and consumption. In other words, we should proceed from ends, the realization of basic needs, to means, the attainment of sound aggregate economic indicators, not the other way around.

Consistent with the targets, the development plan should also be first evaluated in terms of human performance. Therefore, a comprehensive set of social and human indicators needs to be developed to monitor plan progress. The World Bank has been trying to capture this concept since 1990 by composing a Human Development Index which is based on three indicators.

First, longevity, as measured by life expectancy at birth. Second, educational attainment, as measured by a combination of adult literary and combined primary, secondary and tertiary enrollment ratios. Third, standard of living, as measured by real GDP per capita.

Our HDI was ranked 76th in 1990 but dropped to 105 in 1997, slightly better than El Salvador at 107. It implies that our human development indicators are much worse that economic ones.

A strategy for attaining sound economic indicators such as a high economic growth and low inflation rate that emphasizes people and their potential is the only way to open opportunities for a better life. The great Winston Churchill once declared "there is no finer investment than putting milk in babies". Similarly, there is no better future for our country than putting people first on the development plan.

Adapted from the forthcoming book Indonesia: the Future Agenda to be published in May 2000. The writer is studying for his doctorate in economics, Boston College, United States.

Window: Our human development data thus far is often treated secondarily after financial and aggregate economic data such as GDP growth, interest rates, etc.