Why is Indonesia unable to cope with global market challenges?

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.