Stopping the poverty cycle

Stopping the poverty cycle

I am writing in response to an op-ed by Dr. Anis Chowdury, a
consultant with the United Nations Support Facility for
Indonesian Recovery (UNSFIR), that appeared in The Jakarta Post
on June 10.

Of course, everyone wants to help the unemployed and
underemployed in Indonesia. As Dr. Chowdury stated, the idea is a
populist one.

However, we must take into account the costs of any job
creation programs that are created to achieve this objective,
whether the government has the necessary resources to fund such
programs and whether it has the capacity to implement them
successfully.

Unfortunately, the government's past record in this matter is
not something to be proud of.

First of all, it simply has no additional resources to fund
any job creation programs: It no longer has windfall revenues
(e.g., from oil sales) at its disposal to spend readily, and if
it tries to fund such programs through deficit spending, it would
only hurt Indonesia's macroeconomic stability and significantly
raise our public debt, which is already at an all-time high.

Furthermore, various studies have shown that past government
intervention to create short-term jobs through infrastructure
projects were ineffective, given that they did not have a focused
target and were vulnerable to significant financial leakage, and
were thus less successful in creating jobs and reducing poverty.

In addition, most job losses in Indonesia are caused by
excessive and burdensome labor regulations and high taxes and
levies imposed by central and local governments on businesses,
which have prompted many employers to relocate overseas, thus
leading to great job loss and increased poverty among low-income
workers.

Instead of pursuing the course of action recommended by Dr.
Chowdury, the next president would be better off pursuing
policies that would reduce or eliminate these regulations and
taxes and implement good governance practices. Investors would
consequently be more inclined to put their money in Indonesia and
thus create good and stable jobs for Indonesians who want them,
thereby lift them up from the vicious cycle of poverty.

ALEX ARIFIANTO
The SMERU Research Institute
Jakarta