If you are involved in a discussion on current issues in Indonesia, it is likely that at one point during the discussion you put blame on the Indonesian government. Let’s move beyond the blame game and find out what exactly the Indonesian government lacks of.
Many issues have specific causes. But, there are some generic factors that can normally explain why problems occur in the first instance. You may say, the needs of new faces in the government would be one of them, but let’s put this issue aside for a moment.
The first factor is the lack of clarity regarding national priorities. Perhaps only few of us are clear about what Indonesia’s national priorities. If you guess poverty reduction, employment, and economic growth, according to State Minister for National Development Planning Armida Alisjahbana you are correct. These are three aspects that indicate the success of economic development in Indonesia. Poverty has always emerged as a popular issue during the election period although various social assistance account for less than 10 per cent of total government expenditure. Employment is such a critical issue as the fear of increased unemployment has made the government’s action to (temporarily) ban Indonesian workers (TKI) exports to Middle East way overdue. It is worth noting that unemployment is a global issue. Global unemployment was projected by the International Labour Organization (ILO) at 6.1%. The ILO reported that Worldwide, 78 million young people were unemployed in 2010, well above the pre-global financial crisis level of 73.5 million in 2007. Unemployment in the 15-24 age group stood at 12.6 per cent in 2010, 2.6 times the adult rate of unemployment.
If you guess food security is the Indonesia’s national priority, Trade Minister Mari Pangestu will agree with you as mentioned at the World Economic Forum on East Asia in Jakarta (12/6/2011). Food security is also a global issue. The World Bank’s February 2011 Food Price Watch reported that compared to 2010 global food prices have soared about 36 per cent pushing 44 million people below the $1.25 a day poverty line. The report suggested that another 10 million people would be pushed into poverty if prices rise another 10 per cent.
Indonesian officials’ reactions to recent ban on Australian live cattle exports to Indonesia indicate that self-sufficiency in agriculture sectors seems to be one of the government’s priorities too.
Indonesia’s active involvement in various international and regional forums such as the World Trade Organization (WTO), Asia Pacific Economic Cooperation (APEC) and Association of South East Asian Nation (ASEAN) highlights its commitment to be part of the global economy.
Setting a clear priority is important because the above priorities can be conflicting and they are all competing for budget. An example is between food security and self-sufficiency. Self-sufficiency is defined as a condition in which at least 90 per cent of domestic demand for food is met by domestic production. Hence, while food security emphasises the importance of access to food, self sufficiency requires sufficient domestic food production capacity to meet domestic demands. In a situation where Indonesia’s domestic production capacity is unable to meet domestic demand, self-sufficiency targets, which are normally ‘supported’ by trade protectionist policy, may cause increases in inflation rates and raise concern over access to food.
Another example is between employment and Indonesia’s engagement in the global economy. Indonesia’s increasing degree of openness may put its employment rates at risk especially due to the inflow of foreign direct investments (FDI). Although there is relatively strong evidence that openness and FDI are positively associated with economic growth, studies suggest that the least-skilled and non-unionised workers are on average at greater risk in the new global environment than the skilled and organised workers.
It can be immediately seen that setting priorities is not an easy task. Little we know that the Indonesian government has actually stated what its priorities are. Presidential Instruction (Instruksi Presiden) Number 1 Year 2010 state the following priorities: (1) bureaucracy reform and good governance; (2) education; (3) health; (4) poverty; (5) food security; (6) infrastructure; (7) investment climate and business climate; (8) energy; (9) environment and natural disaster management; (10) isolated, forefront, country’s border and post-conflict areas. Should we interpret the order based on priority? The President can explain better than the author. But, perhaps most of us would agree that Indonesia cannot afford to not reform bureaucracy and promote good governance which includes the necessity of law enforcement if it aims to achieve other objectives.
The second factor is failure to give the right response. What constitutes ‘the right response’? Taking lessons from Vivi Alatas’, a senior economist at the World Bank, views on effective social assistance targeting, the right response should be given at the right time, providing the right benefits and targeting the right group.
The right time implies various dimensions. As an example, Indonesia’s success in the global forum depends on when the country is ready to enter the agreement. Getting into economically efficient trade negotiations requires a comprehensive identification of our comparative advantage and trade restrictiveness as well as those of other countries. Unfortunately, there are many times that Indonesia steps into negotiations without having passed through such analysis.
The right benefits imply that responses should be made based on what the core problem is. On recent ban on Australian live cattle exports to Indonesia, Indonesia may find importing from other countries to be an effective solution to stabilise beef prices. However, this might shift Indonesia’s attention from animal welfare and the practise of Halal slaughtering issues.
Targeting the right group implies a careful selection of who should be assisted or protected. An example is regarding the implementation of ‘infant industry argument’. Indonesia may need to protect sectors that are not yet able to compete with other countries. But, these sectors should be the ones that have potentials to grow in the future. History has shown that a strong government is required to impose such policy and at times the Indonesian government ‘wrongly’ takes more into account political aspects than economics aspects.
The third factor is education, education and education. Despite its success in achieving universal primary education and on the right track to achieve universal junior secondary education, education quality remains an issue. Indonesia performs very poor at an international test TIMSS (Trends in Math and Science Study). Indonesia is only 5 points (out of 100 points) higher than the worst performer, Ghana and 17 points lower than Malaysia and 58 points lower than Singapore. The Indonesian education system has also long been criticised for its failure to provide market ready graduates. Vocational education, which should play importance roles in providing skilled workers is often considered to be a ‘second-class’ education accepting students who fail to enter universities. As a result, there has been increasing trend in share of unemployed persons with tertiary education in total unemployment.
Of course, each factor alone is not a sufficient condition to resolve a full range of issues that Indonesia is currently dealing with. It is the complementary between the above three factors and possibly some other factors which can solve most of the issues.
This article is prepared by Risti Permani.
Update (22 July 2011): This article was now published by the Jakarta Post