Technocrats dodge economic medicine ball
Technocrats dodge economic medicine ball
James Castle, Castle Group, Jakarta
It has always been a puzzle to foreign observers why Indonesia's economic technocrats have not done more to socialize the virtues of the economic principles underlying their recovery proposals.
Most investors feel that true economic liberalization in Indonesia began with strategic bank reforms and the removal of many restrictions on foreign investment in the 1980s.
In fact, the basic principles of the "Berkeley Mafia" which have provided the core thinking for the economic policies since the 1960s, strongly support investment and trade liberalization.
It was, after all, the team of technocrats led by the legendary Widjojo Nitisastro and including such stellar technocrats as Ali Wardhana, Emil Salim, Subroto, Muhammad Sadli and many others, which slowly turned the country's economic regulatory environment away from the socialist principles of Sutan Sjahrir and Wilopo, and prepared the way for Indonesia's highly beneficial entry into the global economy.
It is almost as if, having won the intense debate on economic principles and priorities among Indonesia's elite in the 1960s, the winners felt their concepts were too complex or confusing for the Indonesian masses.
Consequently, they preferred to implement economic change by stealth rather than openly confronting the socialist dogma of the country's founding fathers.
This is not to attack the social ideals of the Indonesia's revolution.
A doomed romantic socialism was de rigeur for much of the anti-colonial independence movements in the first half of the last century, and has only recently been seriously challenged in India, the world's largest democracy.
This is not the place for a detailed analysis of the struggle of economic ideologies in Indonesia's traumatic transition in the 1960's from Soekarno's Old Order to Soeharto's New.
Those wishing to pursue the subject can do no better than read John Bresnan's excellent, Managing Indonesia: The Modern Political Economy (Columbia University Press, 1993).
The question is: Why did the brilliant architects of Indonesia's modern political economy, having vanquished their intellectual opponents and taken control of the government's economic planning apparatus, shrink from the task of explaining what they were up to the people?
It appears they were afraid to communicate their policies and ideas because they felt if the average Indonesian knew that they were doing, they would reject the development strategy.
Some of this reticence was probably also due to the Soeharto style of government. Perhaps it was really necessary, as Bresnan theorizes, that "Widjojo's long influence with Soeharto [was due] to his policy of avoiding public exposure."
In any case, the country paid a very high price for this failure, as the influence of the technocrats rapidly waned in the 1990s.
The economic principles of the Soeharto family and cronies began to take precedence over the more prudent policies of the professional economists. This change was a direct cause of the horrendous impact of the 1997 Asian economic crisis here that hurt Indonesia so much more than others.
Still, one cannot dispute the success of the policies that served Indonesia well, far into the early 1990s. Until the crash of 1998, poverty declined, incomes grew and life expectancy increased.
These same principles underlie Indonesia's recent Letters of Intent to the International Monetary Fund, the strong support of the ASEAN Free Trade Area and the reduction of duties to amongst the lowest in the world.
And they are fundamentally sound.
These open market principles have brought prosperity to those countries that have embraced them the most firmly, from the Americas through Europe into Asia.
Despite the soundness of their views and the demonstrable positive impact they have had, however, the current economic leadership still seems to feel that its job is to form an internal consensus and lead from behind.
This strategy may have been necessary in the cloistered and autocratic days of the Soeharto government, but it simply cannot work in a democratic environment with a free press.
Indonesian officials can no longer serve the country well if they are content to hide behind the gray walls of bureaucratic indifference and elitist arrogance.
A democratic government cannot rule by stealth. It must communicate clearly and continuously.
Any government wishing to lead a democratic Indonesia out of its current economic quagmire must build a public constituency for the ideas of an open investment and trade regime and a broad free market orientation where the government concentrates its resources on basic education and health care for the poor and leaves most other matters to the private sector.
It must regulate, but not own, essential public infrastructure.
It is certainly true, as was frequently asserted during the recent meetings of the Consultative Group on Indonesia, that physical security, legal certainty and an honest judiciary are essential to long term economic well-being.
But these are all items that will take years if not generations to accomplish.
Meanwhile, the government desperately needs to build public support for its commitment to privatize state-owned enterprises, seek foreign investment to rehabilitate and expand the country's decrepit infrastructure, particularly in power and telecommunications but also in air and seaports.
Indonesia simply does not have the capital formation and the technical know-how necessary to leapfrog over its current poverty into the increasingly competitive global arena without substantial foreign capital.
There are those who resent this imperative and oppose attempts to respond.
They are wrong, but if they win the current policy struggle, Indonesia will fall further behind and condemn future generations to inferior living standards.
Thus, it is imperative that Indonesia develops a climate that can mobilize private sector funding and foreign direct investment.
This is not a bad thing.
Foreign investment is not a necessary evil. It is a positive good. Indonesia's economic leaders have long realized this.
This having been said, it must be recognized that while foreign investment is a positive good, it does not come without risks and problems.
Most importantly, it carries an emotional and political charge everywhere it occurs.
The fact that it is Indonesia's only hope for recovery does not eliminate the emotional and political opposition it generates.
The emotional concerns can only be alleviated and the opposition defeated by a conscious, committed program of public communication.
It is now time for the economic leadership to trust the Indonesian people and provide them with clear, concise public explanations of the principles they espouse privately and which underpin their policy hopes for economic recovery.
These explanations must emphasize that such policies are good for every Indonesian who is not a rent-seeker or corrupt official.
These policies will create jobs for all Indonesians. They will also create opportunities for education and advancement that depend more on ability and less on political connections or powerful relatives.
I believe most Indonesians will embrace these ideas and the new generation of economic leaders and philosophers will be able to accomplish the short-term successes that are essential to rapid economic recovery with the full support of the Indonesian people.
These short term successes include the sale of state enterprises, the restructuring and sale of assets under the Indonesian Banking Restructuring Agency, the reform of the Tax Department, the establishment of a viable banking system dominated not by large state banks, but by dynamic private sector banks both foreign and domestically owned.
These are the economic goals espoused in private by the country's economic leadership. It is time they fought for them in the public arena.
Indonesians from all socio-economic strata demonstrated their fundamental understanding of the principles of democracy, fairness and equity by their behavior in the free and fair elections of 1999.
The economic technocrats should have confidence that, if they explain their principles and their goals to the public as passionately as they once did to defeat the proponents of socialists and communist economic theory in the 1960s, they will truly transform Indonesian society and create the conditions for enduring prosperity.