What RI should do to ease crisis

JAKARTA (JP): A quarter of Indonesia's 210 million people now live in absolute poverty, and a further quarter of the population is vulnerable to poverty, according to the World Bank.

"The government must design policies for economic restructuring in tandem with policies for poverty alleviation," Shafiq Dhanani, a consultant at the Jakarta office of the International Labor Organization (ILO), said in a recent interview.

Dhanani acknowledged that to accomplish this, the government would have to overcome the difficult dual task of coping with the immediate economic hardships of reduced real incomes, and supporting employment and income growth in the medium term.

He proposed a number of measures the government could take to ease a crisis that preys mostly on the poor:

* In the short term, the government should continue to protect the poor by controlling and stabilizing the price of rice and other basic commodities, and perhaps through the continuation of social safety net programs, including the rice subsidy program and the provision of basic educational scholarships and health services.

* Also in the short term, resources should be allocated to undertake public works programs to provide employment. The focus should be on rehabilitating existing infrastructure (schools, health centers, roads) and creating new rural infrastructure (ports, telecommunications facilities, railways, roads).

* Provide support to the informal sector, such as the provision of power, water and transportation infrastructure to set up businesses, coupled with reduced bureaucratic barriers to informal sector activities.

* In the medium term, the strengthening of three sectors in particular can generate economic growth and large numbers of employment opportunities: small-scale agriculture, construction and manufacturing.

* A renewed emphasis on the agricultural sector, which was rather neglected before the crisis, is urgently required for two reasons. First, agricultural growth affects poverty levels in rural areas more directly than any other sector. This is particularly true outside of Java, where off-farm employment opportunities are scarce.

Second, food production will stabilize food prices, control inflation and also save foreign exchange. The emphasis should be on agricultural technology and help for small-scale farmers in support of high value crops (food and estate crops), rather than on estate plantations as in the past.

* Growth in the construction sector can be spurred by public investment in rural infrastructure to support agriculture and the rest of the rural economy.

* The manufacturing sector has not been able to take advantage of the devaluation of the rupiah and lower labor costs because of its continued dependence on imported materials, components and parts. The sector urgently needs to implement a medium-term program to build manufacturing capability; i.e. to improve the technological, organizational and managerial capacity of domestic manufacturers to produce components and parts that can successfully compete against similar products from abroad. (swe)