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Indonesia: Opinion: Moving beyond the blame game

22/7/11

By Risti Permani, The Jakarta Post, Adelaide, Australia 

If you are involved in a discussion on current issues in Indonesia, it is likely that at some point in the discussion you put blame on the Indonesian government. Let’s move beyond the blame game and find out what exactly the Indonesian government is lacking.
Many issues have specific causes. But, there are some generic factors that can normally explain why problems occur in the first place. You may say the need for new faces in the government is one of these factors, but let’s put this issue aside for a moment.

The first factor is a lack of clarity regarding national priorities. Perhaps only a few of us are clear about what Indonesia’s national priorities are. If you guess poverty reduction, employment and economic growth, according to National Development Planning Minister Armida Alisjahbana, you are correct. These are three areas that indicate the success of economic development in Indonesia.

Poverty has repeatedly emerged as a popular issue during election periods, but various social aid programs account for less than 10 percent of the total government expenditure. Employment is a critical issue, and the government move to (temporarily) ban the export of Indonesian labor (TKI) to Saudi Arabia was long overdue.

It is worth noting that unemployment is a global issue. Global unemployment was projected by the International Labor Organization (ILO) to be 6.1 percent. 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 percent in 2010, 2.6 times the adult rate of
unemployment.

If you guessed food security is once of Indonesia’s national priorities, Trade Minister Mari Pangestu would agree with you, as mentioned at the World Economic Forum on East Asia in Jakarta in mid-June.

Food security is also a global issue. The World Bank’s February 2011 Food Price Watch reports that global food prices have soared about 36 percent compared to 2010, pushing 44 million people below the $1.25-a-day poverty line. The report suggests that another 10 million people would be pushed into poverty if prices increase by another 10 percent.

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.

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 percent of domestic demand for food is met by domestic production.

Hence, while food security emphasizes 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-unionized workers are on average at greater risk in the new global environment than the skilled and organized 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 No. 1/2010 states 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 it. But, perhaps most of us would agree that Indonesia cannot afford to not reform the 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. In the view of Vivi Alatas, a senior economist at the World Bank, 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 advantages 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 stabilize beef prices. However, this might shift Indonesia’s attention from animal welfare and the practice 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. 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, 17 points lower than Malaysia and 58 points lower than Singapore.

The Indonesian education system has also long been criticized for its failure to provide market-ready graduates. Vocational education, which should play an important role 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.

The writer is a postdoctoral research fellow at the School of Economics at the University of Adelaide.

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