Indonesia's Economic Plight
CALDWELL, MALCOLM
Politics, the military and a rising birthrate complicate Indonesia's Economic Plight By Malcolm Caldwell Indonesia could be taken as the quintessential underdeveloped country. Here are virtually...
...To safeguard its reserves, the Government has taken the easy way out, cutting imports instead of expanding exports...
...Of the $1 billion, roughly equal parts are supposed to go to routine, security and investment...
...Indonesians are renowned for their traditional faith in consultation, compromise and synthesis...
...For one thing, Army costs are a major element in the failure of Government revenue to cover expenditure...
...The first step is to eliminate any lingering indebtedness to the Netherlands...
...In 1959, a deficit of about $22.2 million was budgeted for, 120 times as great as was realized...
...Rubber is the more important of the two and usually nets more than half of Indonesia's foreign earnings...
...Imports of consumer goods have been slashed, and with home production shrinking, supply is falling far short of demand...
...Nahdatul Ulama and the PKI (Communists) have backed Sukarno in his insistence on the importance of the cultural side as well...
...the Army the answers to instability and rebellion...
...The inability of the Government in accordance with these tolerant principles to effect an improvement in the economic situation can only benefit the ideological and authoritarian alternatives—Communism and the Army...
...The Army can no more be excluded from consideration in economics than in politics...
...The underpopulated outer islands, main source of foreign exchange and Malcolm Caldwell is Research Fellow in the Modern History of Southeast Asia at the University of London...
...Usually in a situation like this, with job opportunities outside traditional agriculture receding, the Indonesian has returned to his village, where at least a plate of rice can be expected...
...now, nearly a year later, prices are still soaring...
...Indonesia may pay dearly for indulging its dislike of the Chinese minority so precipitously...
...During the 1959 constitutional changes, he promised that the prices of these commodities would come down within three months...
...Routine and security costs will automatically be pushed up, and investment, the residual claimant, will once again find itself the sufferer...
...For another, the military have been tempted to make good the failures of the planners by participating in economic affairs— using troops, as one observer was reported to have commented, to control the laws of supply and demand...
...Inflation is endemic...
...In the disquieting race between population and food production, population has been gaining...
...It may be true, as Sukarno explained in justification of his move, that the Chinese had a monopoly of the gold and dried fish trades, but the blame for the vast gap between the official and the black-market exchange rates for the rupiah, and the ballooning cost of living, cannot be so lightly shrugged off his own shoulders onto those of the scapegoat...
...By the ruling 1945 Constitution, Parliament cannot overthrow the Government, but all taxes must be based on law, and every law requires the approval of Parliament...
...Sukarno's insistence on pushing forward toward "national economy" highlights the emphasis he places on prestige factors...
...There is dangerously inflammable material here for the urban Communists to exploit...
...Here are virtually all the economic problems of an agrarian society trying to get off the ground, but still floundering...
...The total failure of President Sukarno's much vaunted sandang-pangan (clothes and food ) program has been one of the most damaging incidents of his career as national leader...
...Prestige also underlies the relatively generous welfare provisions existing in Indonesia—keeping up with the Joneses of the Western world...
...Deforestation in the interests of extending cultivation has gone so far that soil erosion has become a threat...
...In 1959, in a desperate attempt to bring the currency under control, the Government reduced banknotes to a tenth of their face value and blocked deposits over a certain level...
...Soebadio Sastrosa-tomo, Chairman of the PSI, in his speech on the draft budget, brilliantly exposed its bogus arithmetic...
...this resentment exploded in the 1958 Sumatran revolt which smolders on...
...Expenditure proposed is not greatly in excess of the actual outlays in 1959...
...Imports of rice are both necessary and, in view of the instability of Indonesia's exports, uncertain...
...This state of dependence should be a powerful inducement to varieaate the economy, but so far Indonesia's leaders have shown a tendency to gather their rosebuds when world conditions give them windfall gains and then to find themselves powerless to act when raw material prices collapse and action to broaden the base of the economy is most needed...
...The failure of Jakarta to quell the peripheral conflicts has meant the development of an illicit smugglers trade, avoiding duty...
...Rubber and oil are the staples of Indonesia's export trade, and the principle determinants of her day-to-day prosperity or poverty...
...Dutch undertakings have been taken over, and the traditional markets for Indonesian produce in Holland are being rapidly moved elsewhere—tobacco to Bremen, tea to Antwerp, copra to London...
...The PSI (Socialists) and Masjumi (the Moslem party) adopt a more orthodox, planner's approach to the economic problems of their country...
...revenue, resent the fact that most of the planned improvements are for the benefit of Java...
...Investment, which is sine qua non for the realization of the sandang-pangan program and economic development in general, was low in 1959, and is unlikely to be any higher in 1960...
...The PKI claims to have the answers to economic stagnation (pointing to China...
...Because imports of raw materials and capital goods are falling, many enterprises are having to wind up, or run at less than half capacity...
...Already there are almost 90 million Indonesians, over 50 million of them crammed into Java, which cannot hope to be self-supportine...
...The rooting out of the Chinese from rural retailing is likely to have serious repercussions on Indonesian economy...
...Here also there are complicating political factors, part cause, part effect of economic weakness, part independent variable...
...In the last year an ominous tendency has appeared for the movement to be in the opposite direction —the poor and unemployed have been flocking to the towns to swell the numbers of beggars, betja-drivers and prostitutes...
...Sukarno's various sleight-of-hand diversions have contributed to the solution of nothing outside his own political problems...
...The Soviet Union, which is not considered to be ex-colonialist, has an advantage here...
...Indonesians must do all the things the Dutch did for them...
...Rural cooperative credit institutions, though hopeful as prospects, have not yet the necessary coverage or assets...
...But this abstracts from the continuing inflationary pressure and declining production, the one pushing up expenditure, the other frustrating revenue...
...and trade, at least that part of it measured by Government statistics, has been declining disastrously—imports in 1959 were only a third of those in 1957...
...the PNI (the Nationalist party...
...But it is an unreliable staff to lean on: A change in prices on the world market can make or break the economy...
...The 1960 budget became a flashpoint...
...Government revenue, the greater part of which comes from import and export duties, is at the mercy of trade...
...From mid-1955 to the end of 1959, the price of rice more than doubled, that of coarse textiles more than trebled...
...The Government itself has contributed to raising the prices of necessities by fiscal changes...
...It would pay Jakarta to rely more on direct assistance, with foreign technicians to supervise and direct initially...
...President Sukarno's inability to gull Parliament into accepting his suspicious 1960 proposals triggered the changes earlier this year which substituted the nominated mutual cooperation Parliament for the previous elected one...
...Indonesians must reflect in their present trials that it would be pleasant to have some direction, a path along which progress could be made in a straight line, even if arbitrarily imposed...
...Sukarno has set himself the twin tasks of raising per capita income and, in pursuit of socialism ? la Indonesia, socializing and "nationalizing" the economy...
...The Chinese, for all his faults, sped the wheels of trade—each an individual entrepot, importing and distributing goods from beyond the village, providing credit for local producers, buying and starting on their way to world markets local export products...
...This is as unlikely to succeed as their attempts to restore peace to a troubled nation—with a population squeezed between inflation and depression, the imposition of internal "security" cannot become easier...
...But Java's needs are urgent: Rising population causes subdivision of holdings and rural underemployment, frustrates improvements in agricultural productivity and indicates the necessity for industrialization...
...President Sukarno is like a man on a bucking bronco—Indonesians admire his skill, but fewer and fewer mistake his frantic activity for purposeful movement...
...Banknote circulation was slashed by about $108 million...
...Meanwhile, unemployment is spreading...
...These drastic measures, while seriously incommoding trade and industry, failed to halt inflation, and before the end of the year note circulation had regained its former level...
...The national sensitivity also interferes with the optimum use of foreign loans, upon which paradoxically Indonesia becomes increasingly dependent...
...Khrushchev announced more than $250 million of aid during his visit earlier this year, and provision has been made for Russian skilled workers to cooperate with Indonesians in assembling and running the plants which will be bought from Russia...
...Three centuries of Dutch colonial rule left a vacuum of anonymity which must now be filled by a distinctive, identifiable Indonesian persona...
...Wages are subject to minimum-wage legislation, the working day is shorter than in competing export economies and social benefits are comparatively generous for one of the poorest countries of the world...
...In a colonial plural society where there was economic specialization by racial origin, there were few opportunities for Indonesians to acquire the skills they are now being asked to exercise, and the displacement of Europeans and foreign Orientals from positions of economic power must in the short run reduce possibilities of growth of national income...
...The civil service is over-loaded with ex-nationalist fighters indebted to political patronage for their posts...
...Who is to replace him at such short notice...
...The causes are multiple, with the Government as main culprit...
...Sukarno has underestimated the former, overestimated the latter...
Vol. 43 • September 1960 • No. 34
