Wither populist policies?

Wither populist policies?

By Winarno Zain

JAKARTA (JP): How do we read Hubert Neiss's recent visit to
Megawati? The fact that the International Monetary Fund Director
for Asia and Pacific felt it necessary to meet the leader of one
of the biggest political parties in Indonesia, was an
acknowledgment that the economic reforms could be off track when
the new cabinet forms after the June 7 election.

It is an indication that Neiss has started worrying about the
commitment of the next government toward the economic reforms.
Not much was revealed at the meeting between Neiss and Megawati.
But one can assume that at the meeting Neiss explained the
importance of continuing economic reforms in Indonesia. Or may be
Neiss sought assurance from Megawati, that should she be elected
as next President, she will not abandon the economic reforms as
mandated by the IMF in favor of adopting more populist economic
policies.

Populist economic policies have been the dominant theme in the
political statements of some major political parties. Populist
programs are the most attractive among the people and one that
can be easily understood.

It is a logical response after so many years of repression by
the Soeharto government. In the aftermath of economic meltdown,
the gross injustices committed by the former government and in
the midst of the debris of Soeharto and his cronies' economic
empire, the case for adopting populist economic policies in the
next government are overwhelming indeed. Even though some aspects
of the populist policies are questionable, politically and
economically, it can not be denied that the appeal of populist
policies are strong and powerful.

Populist programs consist of several elements, even though
some of them are not explicitly spelled out. The emphasis is on
the growth of small and middle entrepreneurs, the advancement of
cooperatives and the increase of income for farmers.

The populist proponents claim that these were the groups who
suffered most and who were discriminated against during the
Soeharto era. They claim the government has wasted enormous
resources in collusion with big businesses. They want to correct
the allocations of resources by giving more resources to these
groups. Proponents of populist policies acknowledge that what
they are seeking is a kind of affirmative action policy, where
the government has to take sides in favor of a certain group,
such as those who are deemed as economically weak.

Although almost every politician says they support populist
policies, there is one figure, however, who stands taller than
the others. Adi Sasono, the Minister of Cooperatives and the
Development of Small and Middle Entrepreneurs is definitely the
most visible person behind the push for populist policies. Dubbed
as "the most dangerous man" by Asiaweek magazine recently, Adi
is getting more popular every day.

Adi has been campaigning for the development of small
entrepreneurs and the return of their rights for better treatment
from the government, long before he was appointed cabinet
minister. As an NGO activist, Adi saw with his own eyes many
injustices and destructive policies inflicted by the authorities
against the weak and the poor. When Adi spoke at seminars, or
when he delivered speeches, you could be sure that the theme of
his speech was the plight of the poor.

His speeches were full of harsh criticisms and attacks on the
Soeharto government and conglomerates. And Adi did this when
Soeharto was in power! Speeches by Adi about the plight of the
poor, had an aura of sincerity, since they came from his own
personal experiences and observations during his NGO days. His
speeches are convincing and powerful. They are not slogans as it
might sound if uttered by other politicians.

There are other issues which are part of the populist
platform, not explicitly formulated, but rather put forward as
general remarks, reflecting their attitudes or opinions on
certain issues. The populist proponents, for instance, although
not entirely opposed, are not in favor of free market mechanism.
They believe free competition only gives an advantage to the big
business, while depriving small enterprises their opportunities
to survive and develop. They believe government intervention is
still required for more equitable resource allocation.

They asked the government to put in more money for
agricultural development, whose progress had been lacking
compared with the growth of the industry. They accused the
government of neglecting agricultural development, causing the
standard of living of farmers to remain low.

In this regard, they forget that for many years, most of the
government development expenditure went to the agricultural
sector. They feel building modern industrial sectors was a waste
of money, since these industries could not compete in the
international market anyway. It was better the funds were spent
for agriculture to improve the lot of farmers that constitutes
the majority of the population.

They claim they are not anti-big business and anti-Chinese
business per se, as long as the size of their business was
acquired in a fair and legal manner. Even though they are not
entirely opposed, they are not enthusiastic, and even suspicious
of globalization. They view globalization as being forced by the
industrialized countries on the less-developed countries as a
means by which foreign companies could gobble up domestic
companies who lost the battle in globalized economy.

They say you can not let domestic companies compete because
they are still weak and need protection. Clearly, they view
globalization as being more of a threat than an opportunity for a
country. On the issue of privatization of state companies, we
still hear some nationalist sentiment. They reject an outright
sale of state companies specially those operating in vital
industries to private sectors including foreign companies. They
view privatizing strategic and important industries
unconstitutional.

If policies of the new cabinet are dominated by economic
populist programs, there would be some risk for the
sustainability of economic reforms. Populist programs, if carried
out too far could undermine monetary and fiscal stance, placing
obstacles for achieving strong macroeconomic foundations, that
are necessary for economic recovery.

Resource allocation would be based on political consideration,
not economic, making the economy less efficient. The pressure for
loose monetary policies to ease the pains of the business sector
-- specially the small business -- would be too great for the
government to resist. Similarly, pressure for expansionary fiscal
policies would be tremendous, posing a great risk for the
government budget. There is a risk that the government would
carry out populist programs at the expense of sound monetary and
fiscal policies.

The proponents of populist policies do not appreciate the
importance of macroeconomic stability as a precondition for a
sustainable economic growth. They say that if government
subsidies to certain groups result in budget deficit and high
inflation, so be it. They'll never understand that high inflation
will make everybody's life, including the poor's more difficult.
For them, the important thing is equitable distribution of
income, and that has to be achieved, if necessary, at the expense
of economic growth.

The next government, although politically more legitimate,
will work within the multiparty environment, and so politically
will be weak. As a coalition cabinet, they will not be strong.
They would easily concede to populist demands "to pick winners"
at the expense of a strong macroeconomic foundation. It is
doubtful that the next cabinet would have a strong economic team
like in the previous cabinets. Economic policies and decisions
could be disarrayed since they would be less coordinated and
would depend on the individual minister, who likely would
represent the interests of his political party, rather than the
interests of the country.

As the implementation of populist policies could slow down
economic reforms, it is necessary for the economists to have more
dialogue with the proponents of populist policies. Economists
should be more active to convince them that Indonesia needs to
continue economic reforms, as failure to do this would be
disastrous and would inflict much pain on the population,
including the poor, the very group the populist policies want to
help.

The proponents of populist policies should be made to accept
the fact that the flow of foreign investment is a crucial -- may
be the most crucial -- element for economic recovery. The
government and domestic private sectors are still struggling to
survive and can not be expected to make investments. The national
income is shrinking as there has been no investment for some
time. Like a household which has no income, what has been
consumed by the Indonesian economy has been taken from current
assets which are dwindling, and could run out soon if there is no
replenishment from investment. What has kept the Indonesian
economy afloat is money coming from the IMF and the World Bank.

Whether Indonesia will get out of the economic crisis and have
sustainable economic growth in the coming years will depend on
the political will of the government to continue economic
reforms.

Political leaders should realize that politics are not only
about the allocation of benefits to different groups. Politics
are also about the allocation of sacrifice and pain to achieve a
better future. People would be more willing to endure hardships
and give chances to the government to improve the economy as long
as they could be convinced to trust the government. That is why
having a strong and credible government matters.

The writer economic columnist, former deputy editor of SWA
business magazine.