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.