RI needs to turn its economy inward
The Indonesian economy continues to deteriorate as the rupiah further weakens against the U.S. dollar. Economist Kwik Kian Gie proposes a new strategy in the development of the country's industry.
JAKARTA (JP): The International Monetary Fund (IMF), which has been losing its momentum to help revive the Indonesian economy, is now apparently trying to revise the government's budget plan before deciding on the disbursement of the next tranche of its aid.
The revision is to help the IMF understand how much of a budget deficit it will have to cover, so that the government will not print new money, which would in turn cause hyperinflation.
The problem is, the IMF's US$43 billion in aid will be disbursed in small increments in line with the implementation of the country's economic reform programs.
Several domestic and international analysts believe that Indonesia will only be able to overcome its social and economic problems if it receives massive aid, much like the assistance given to Europe after World War II under the United States' Marshall Plan. Such assistance must come under favorable terms or it would become a time bomb ready to explode at the date of its maturity.
The country's worsening economic situation, mainly from the rupiah's sharp depreciation against the U.S. dollar and skyrocketing interest rates, has created social turbulence and political instability. The nation is even facing the danger of disintegration since some provinces, from which natural resources are used to finance the central government, want to become independent.
Dipression
Without such massive aid, Indonesia's economy is likely to fall into a very serious depression marked by stagnation and high inflation.
While waiting for the disbursement of IMF aid, Indonesia should undertake several measures to revive and improve the economy. The country will first need to have a credible national leader who can maintain social and political stability even as the population suffers from increasing hunger and poverty. Such a leader must have a past free from corruption, collusion and nepotism.
With political stability, foreign investors would likely invest and take over some Indonesian factories, which are now facing financial difficulties due to huge overseas debts and a dependence on importing raw and auxiliary materials. Backed by foreign money and benefiting from Indonesia's low labor costs, these factories would be able to focus their operations on exports.
Innovative
Meanwhile, Indonesian entrepreneurs must become more innovative by establishing new factories that can rely totally on domestic resources and be free from imports. Technology needs to be developed within the country for agriculture, plantations, animal husbandry and fisheries.
Such new factories could temporarily ignore the international market because it would be difficult for them to export their products for a period of time. They could rely totally on the domestic market, which is very huge. This inward-looking strategy should not necessarily make Indonesians feel inferior because there is nothing wrong with it.
Such a strategy could help Indonesia restart industrialization programs with support from domestic human, financial and natural resources, with the domestic market its main target for the time being.
Up to now, Indonesia has made the mistake of adopting a broad- spectrum system in developing its export-oriented manufacturing industry, while ignoring the quality of individual factories and their owners. The factories have been too dependent on imports and their owners much too attracted to foreign capital.
The government has also made the mistake in relying too much on foreign capital in its monetary policy while ignoring domestic savings. This policy caused the economy to grow rapidly as the inflow of foreign capital increased. But business activities subsequently stopped when foreign investments dried up.
So, now let Indonesia's debtors settle their own problems with their foreign creditors. They can reschedule the debts or turn the debts to equities for the creditors.