Tough policy key to cure crisis

Tough policy key to cure crisis

By Jusuf Wanandi

JAKARTA (JP): Indonesia is a developing nation which has to go
through crises and challenges to become an industrialized and
mature nation. Every developed nation today has gone through this
phase in its history. Take, for instance, the depression in
industrialized nations in the 1980s. This very serious and
complicated economic and political crisis at present definitely
has a severe effect on the Indonesian people and will take at
least two to three years to overcome. In the meantime, the
sufferings of the people, especially low-income people, should
not be underestimated.

But in the longer term, this crisis can have positive aspects,
so long as we can learn lessons from it. This crisis also has
opened up an opportunity for us to look again at our development
strategy of rapid growth, debate it vigorously among ourselves
and come up with a new and better strategy for the future.

First it should be clear to us that the so-called "Asian
miracle" of hypergrowth was not a miracle at all, but was
achieved through sweat, sacrifice and even blood. For Indonesia,
this achievement was possible after we changed governments in
1966. In China it was through a "cultural revolution" which was
devastating before Deng Xiao-ping could change it into the "Four
Modernization" program about 18 years ago.

But now East Asia, and particularly Indonesia, has a second
chance to do it better for their own future development if they
can solve the existing crisis in a reasonably short period of two
to three years. This is not an impossibility as evidenced by
Mexico. But that means that we have to do what is necessary to
restore confidence in the market. It means that we have to be
serious in implementing the policies we have agreed to with the
IMF, have a reasonable plan to solve part of the private foreign
debt and to have sufficient political development to be able to
show that good governance is possible in the future.

It has been clear from our recent experiences that rapid
growth is neither adequate nor possible anymore in the future. A
steady growth of 5 percent would be adequate and decent if it
paid attention to the need for inclusiveness (that is broad
participation of the people), balanced growth and sustainability.

As part of a globalized economy over the past decade, the
number of Indonesians living below the poverty line -- which had
dropped steadily from 60 percent in 1970 to 11 percent in 1996 --
is again on the rise as segments of society are being left out of
the growth process.

Those left behind consist of a lot of low-income people,
landless farmers and small businesspeople, especially in the
traditional and informal sectors. An inclusive growth has to look
into policies in which these people could join in the national
development, especially through training, education and by
becoming part of the market economy. Here assistance and
intervention from the state would be a necessity, especially
through incentives and budgetary support, because the market
alone would not be able to do it.

What also has become obvious from the current crisis is that a
balanced development is a necessity from the start. This means
that the so-called "Korean model of development", in which
economics comes first and political development can be deferred
until a certain level of economic development has been achieved,
is no more valid. Due to education and technological
breakthroughs and also because some outside influences and a
degree of "intervention" in domestic developments cannot be
avoided in globalized economies, people's participation and
social control are critical. This would only happen if a certain
level of political development and democracy could be
established.

One may argue that for a smooth economic development to take
place, political development can remain one step behind. But one
should be warned about this, because it is so easy to use this as
an excuse for postponing political development.

In the end, good governance based on democratic development is
a prerequisite for sound macroeconomic policies to be established
and implemented because some people are bound, especially in the
beginning of economic development, to be left behind and they
only can accept some discrepancies if they can participate in
other ways in national development.

Sustainable growth is another part of the future national
development that can be ignored only at the peril of a successful
development. The haze problem in Southeast Asia last year showed
how disastrous this could be for the region if it was repeated in
the future, not only for health and economic reasons, but also
for political and security reasons. It could permanently damage
the solidarity and spirit of ASEAN cooperation and create strains
and potential conflicts in the region after 30 years of peace and
cooperation.

But more than that, sustainable growth means that natural
resources have to be conserved and greater attention should be
given to human resource development. In the end, the objective of
national development, including economic development, should be
the people themselves.

These points have to be considered in the next formulation of
a new strategy of national development. This crisis has given us
a chance to be able to do it before it is too late, and however
painful this crisis may be to the Indonesian people, it should
also be seen as giving us a time to reflect and debate our
future.

As in every crisis, this one will certainly be overcome. The
problem really is how to do it within a reasonable amount of
time. To do that, very stringent policies, however tough these
may be in the first years, are vital and have to be implemented
in a consistent and transparent manner.

Only then could you expect to have public trust back and
develop further in the medium term. Without this, the economy
could spiral into a depression over the next decade or so, as the
Latin American debt problems showed us in the 1980s.

To be able to do all this, the tough policies agreed upon by
the government and the IMF have to be implemented and a credible
plan to overcome private debts has to be in place.

Furthermore, good governance which is trusted by the people
and the market has to be in place. If all these could be
established, then we would not have to be pessimistic about the
future, although some tough years lie ahead and a lot of people
are likely to suffer.

For the future to be a better one, a vigorous debate on a new
strategy of development could begin as soon we start to implement
all the critical policies mentioned above.

As for the region, two things have to be said. One is that for
ASEAN to be relevant and effective in the longer term, it has to
cooperate much more closely. The haze and currency crisis have
shown that vividly. This means that more coordination of
macroeconomic policies is a conditio sine qua non, if ASEAN would
like to overcome the crisis and charter more resilient economies
in the future. Furthermore, more cooperation toward maintaining
sustainable growth is a necessity for ASEAN to survive. This
means that much closer cooperation is needed rather than only at
the intergovernmental level, as has been the case in the last 30
years.

For East Asia, the debate on "Asian values" has had some
impact on the crisis itself. The debate has created some
arrogance among some of our leaders who have not been willing to
listen and understand about some of our own weaknesses. We need
to look at ourselves to be better prepared to make cyclical
corrections and not blindly delay resolute actions that are
necessary to overcome the crisis.

The writer is chairman of the supervisory board of the Center
for Strategic and International Studies.