Searching for solutions in a crisis

Searching for solutions in a crisis

By Ram S. Ramanathan

JAKARTA (JP): Irrespective of how Indonesia recovers from the
current economic crisis, those who govern the country need to be
concerned with the massive import dependency in a land of
remarkable natural wealth.

Indonesia is not a Hong Kong or Singapore or even a Taipei,
aspiring to a global trading status with the consequent fund
inflows. It is too large a country, and too far back on the
development stage to believe that opening its borders to the
global onslaught will accelerate its wealth creation.

Nor is this country a Mexico, whose proximity to the world's
largest economy, coupled with a free-trade association, helped in
its recovery from near collapse. The only free-trade association
Indonesia has is itself in deep trouble, with all drowning
members simultaneously groping for recovery aids. Contracted out
"facon" facilities ala Mexico, are not likely to be Indonesia's
saviors.

The country can and should adapt the Indian and Chinese
models, however regressive they may seem. Both these countries
have gone against conventional free market philosophies and often
turned their backs on international pressure. Both have
prioritized development of domestic industries and exports.
Imports have been notoriously controlled, even to the extent of
mollycoddling inefficient local producers.

Over 30 years of wealth creation and growth have been
destroyed in a matter of months. It is nothing but farcical for
some people to claim that only the top 200 families have
benefited from this wealth creation.

As someone who has seen this great country grow over the last
20 years at least, I can vouch for the general economic growth
all round, not just in a few hands. Of course, it is true that
wealth distribution is unequal; it is true of all countries,
including for the U.S. and Japan.

What is more relevant is the damaging effect of an oligopoly
that inevitably bred corruption and further cronyism.

Not being an economic expert, and not working for the lender
banks (not yet, any way), I do not see how most private debts are
going to be repaid, since they are invested in nonproductive
assets.

Given this scenario, most of the IMF aid will, one way or the
other, be used to repay the foreign lenders. This is what history
has taught us and senior economists such as Milton Friedman have
argued against. At the end of the day, the beneficiaries will be
the greedy local borrowers and the foolish lenders. The IMF will
have to be repaid some day, and this burden, which was incurred
by 200 families, will now be borne by their 200 million
compatriots. This will make a super, though tragic soap opera.

Why go through all these problems and still be in debt? All
foreign exchange deals can be banned and imports curtailed to the
essentials to conserve the few dollars in the till. The country
can then go safely back to self-dependence. The creditors can
eventually be paid back in cash or kind, though not many of them
will return in a hurry.

This will also be a good way to get even with the speculators,
since they will have nothing to speculate on.

This may be a lot better than the currency board, which every
economist and noneconomist says will leave the county bankrupt,
and will only help those who have hoards of rupiah to be moved
offshore, and save a spat with the IMF.

It will probably set the economy back 20 years, but as many in
the recent People's Consultative Assembly meeting have said,
national pride will be retained; not to mention hard earned cash.

The writer is a consultant at PT Bakrie & Brothers.