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.