Wrong policy guides poverty alleviation drive, says expert

Wrong policy guides poverty alleviation drive, says expert

Berni K. Moestafa, The Jakarta Post, Jakarta

Millions of Indonesians will remain poor if the government sticks
to its current poverty alleviation strategy that focuses on
economic growth, but neglects the country's rural economy, said a
poverty expert on Wednesday.

University of Gadjah Mada economist and noted poverty expert
Mubyarto lashed out at economists who continued to preach that
economic growth was the only strategy to alleviate poverty.

This approach did not work before the 1997 financial crisis
and remained ineffective after the crisis, he said.

"Five years after the crisis, many people, including noted
economists, still don't understand the real nature of poverty in
Indonesia," Mubyarto said in his paper presented at a workshop on
evaluating poverty alleviation programs organized by the Ministry
of Foreign Affairs, and the United Nations Economic and Social
Commission for Asia and the Pacific (UN-ESCAP).

The high leakage of funds from the social safety net program
launched after the 1997 crisis was one example of this failure.

He said much of the funds went to people who were not poor.

The government forgot the rural economy when it thought that
mass lay-offs in various industries during the crisis had
produced millions of new poor people, he explained.

"They (economists) never see or never want to see the growing
ekonomi rakyat (people's economy), which has absorbed
unemployment from the formal sector," Mubyarto argued.

Instead, the government insisted on prescribing policies that
were macroeconomic-heavy to boost economic growth and help the
poor.

However, worshiping growth kept scarce capital limited to only
a few business sectors, leaving out the informal sectors or the
rural economy. Before the crisis, the fallacy of this approach
was already apparent.

Indonesia's economy, which expanded rapidly over almost three
decades, failed to distribute the subsequently accumulated new
wealth equally among its population. Capital was confined to the
local conglomerates and to multinationals that drove the economy.

Mubyarto said the gap between rich and poor became wider over
the years, eventually leading to the violent student protest
known as the Malari Affair in 1974.

"Even if the Malari Affair had prompted the government to
issue various equity programs, it was not sufficient to encourage
the shift in development strategy away from a growth-oriented to
an equity-oriented strategy," he said.

And the unbalanced strategy continued after the 1997 crisis,
he added.

Around US$60 billion in government bonds was issued to raise
funds to help banks recover from the crisis. Many of these banks
were ailing because they had become cash cows for the business
groups of their respective owners. When the crisis quashed those
businesses, the banks were left with around $43 billion in bad
loans.

Despite the costly bail-out program, however, the banking
sector remains fragile almost five years after the crisis. Tax
payers, meanwhile, are still paying for the $60 billion
government bonds, plus their accumulated interest.

"This bank recapitalization program is the most recent and
clearest proof that the inequitable policy sides with the
conglomerates on the one hand, while it neglects the economic
aspirations of the 'little people' on the other," Mubyarto said.

The government should aim for an equal distribution of wealth.
This, he said, would vitalize the rural economy on which most of
the poor now depend to survive.