Why is Indonesia unable to cope with global market challenges?

Makmur Keliat, Jakarta

The Indonesian government has relied on three popular arguments to convince the people that the increases in the fuel prices were the right decision.

First, the price of fuel, domestically, was far below the price of the international market. Second, the price of fuel, it was argued, mainly benefited the rich on the grounds that the largest part of the subsidized prices were consumed by the middle and upper class members of Indonesian society.

Third, if price corrections were not made, then there would be a huge deficit in the state budget and a great temptation for fuel to be smuggled out of the country.

Seen from the logic of political economics, the government's decision to increase the price of fuel has symbolized the paradox of the state's autonomy.

On the one hand, it has implied the weak autonomy of state to cope with challenges posed by the dynamics of the global market. In essence the decision has displayed the victory of the market over the state.

How the market has overpowered the state can be clearly seen from the alterations of the state budget. The fact that the budget has been frequently revised due to the increase in oil prices on the global market clearly shows that the control over the state budget no longer fully rests in the hands of government.

That is why it is very difficult to accept the view that the state budget is an instrument through which Indonesia exercises its national sovereignty.

On the other hand, the rise of fuel prices has also reflected the strong autonomy of state vis-a-vis domestic pressures. The insistence of government to impose such a massive hike, indeed unprecedented in the history of Indonesia, indicates the strong conviction of policy makers that the public does not have enough political capacity to resist the decision.

The weak resistance of the public can be attributed to the government's acumen by stating that the price of fuel mainly benefits the middle and the upper classes. Such an argument has created mixed feelings and polarized society, particularly between the middle and the lower class.

The government has also systematically polarized the society by launching the direct cash assistance policy (BLT policy) to the poor shortly after government decided to increase gasoline, diesel and kerosene prices.

The policy has shifted the agenda of public discussion from reasons behind the drastic rise of fuel prices to the question of whether the policy has been honestly disbursed to those who can be categorized as poor and the needy.

There has been no serious public discussion on the government's argument about international prices.

Rooted in the neo-liberal perspective, the term international price basically refers to a mechanism for pricing policy fully based on demand and supply on the international market. It is strongly believed that international price is the least distorted and the most efficient mechanism for allocating national resources.

The absence of serious public discussion on international prices has sent alarming signals. The neo-liberal perspective seems to have succeeded in transforming their ideas into hegemonic power in the Gramscian sense, since it has dominated not only the intellectual constructs of policy makers but also the mindset of the public in general.

Indeed, if the government has a strong commitment to upholding the principle of international pricing, then the entire regulation governing all tariffs on imports should be abolished. As the proponents of neo-liberalism always point out, tax collected by government from goods coming into a country will harm consumers because they have to pay more.

But it is most likely that such decisions will never be adopted because the abolition of the import tariffs will reduce substantially the government's revenue. Therefore, it is not an exaggeration to say that government has put forward the argument of international prices mainly to reduce the government's expenditure in the state budget. To put it a different way, it is not intended to reduce the government revenue.

The problem with this policy is that the behavior of the state is almost similar to the behavior of traders whose main concern is how to get more revenue and reduce expenditure. The question then: Is this the state Indonesia is expecting to have in the future? Is this the state that Indonesians are dreaming about? Could we justify the existence of a state whose preoccupation is how to gain "profit" from its activities?

The questions need to be answered because a number of human development activities, particularly in the educational and health sectors, have been driven to get their income via market mechanisms. This, for instance, can be seen from the introduction of State Owned Law Body status for a number of universities in Indonesia.

Similarly, there have been a number of reports showing that public health centers (Puskesmas) at the village level have run their activities like private businesses. For those who support the behavior of state similar with that of free enterprise businesspeople may think that this is the right track to transform Indonesia into a trading nation. But, such activities could also become a perilous road as it could also push the country into a "traded nation".

The reason is that all activities will be judged and evaluated on the basis of profitability through the market mechanisms. If this spirit is used as a yardstick then the state will surely lose its energy to promote justice, particularly for those who have been marginalized and unable to compete in the market.

The writer is the Executive Director at the Center for East Asian Cooperation Studies and International Relations with the school of Social and Political Sciences at the University of Indonesia.