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Sunday March 04, 2007

Last Saturday, 24 February, Coordinating Minister for the Economy, Boediono was inducted as Professor at his Alma Mater University, Gajah Mada in Yogyakarta. His inaugural speech raised the issue on the problems faced to Sustaining Democracy and Economic Growth, an abstract of which was published in Bisnis Indonesia of 26 February. A shortened version translation into English is given here for readers of the Indonesia Digest. 

Although today recognized as one of the world’s largest democracies, Indonesia continues to be beset by economic and social problems, a number of which were exacerbated by almost incessant natural disasters. Will Indonesia and the Indonesian people be able to stay on the road of true democracy? What is the role of economic growth in maintaining this democracy? Are we on the right track, ponders Professor Boediono.

Nine years ago the Indonesian nation decided to change the course of its history, choosing to follow the path of democracy and pluralism, asserts Prof. Boediono.  Now that we have taken this crucial decision, the question that remains to be asked today is: are we on track? Are there issues that need to be corrected? What were the basic issues then that pushed the Indonesian people to take this road of drastic change?

Thirty years under the New Order government (Orde Baru under President Soeharto), this regime had succeeded to raise the country’s economic and social standards. Poverty was significantly lowered and various social welfare indicators showed impressive improvements. And yet, with all these advancements in our living standards, why was there widespread dissatisfaction, that the cry for a change in national leadership became even louder?

The answer must be sought in the other aspects of life. For, amidst this material progress, there developed,- more prominently in the last decade of the New Order- the perception that corruption, misuse of power in government, and cronyism with and among the private sector have become more and more rampant. These dissatisfactions crystallized and needed a mere spark to flare up. This spark came in the form of the Asian economic crisis in 1997, which in Indonesia carried over into a multi-dimensional and political crisis.

Four basic demands were pushed by the people, whose movement was spearheaded by students’ demonstrations. These were: (1) improvements in the economy; (2) improvements in governance; (3) the supremacy of law and (4) democracy.  

And to answer the question whether we are on track today, Boediono avers: “yes, we are”.
This answer, nonetheless, is by no means an assurance that we will reach our aimed destination Since, at each stage of this journey there are crossroads at which points this nation must take crucial strategic decisions, where not one single route is the most correct.

Political economic theory teaches us that in general, studies have concluded that low-income societies that generally tend to be closed societies need to focus on developing their economy first, since the need for more democratic processes will appear only at a higher educational level. However, once the need for democracy emerges and finds its momentum, this process can no longer be stopped. And, according to Boediono, Indonesia has today reached this crucial stage.

A number of empirical studies reveal, continued Boediono, that the level of economic growth is a determinant factor to sustain democracy. The most frequently quoted study states that following 1950-1960 experiences, countries that had achieved per capita income of
US$ 1,500 (based on purchasing power parity – PPP) could expect democracy to last for only 8 years. At a per capita of US$ 1,500-US$ 3,000, democracy could thrive an average 18 years. Whereas, at a per capita income of US$ 6,000, the power of the democratic system had become far stronger and the probability of failure was a mere 1 in 500.
Therefore, where is Indonesia today?

Calculated on the basis of PPP-dollar in 2006, Indonesia’s per capita is estimated at around US$4,000. This achievement must be seen in relation to the critical level that democracy can be sustainable, which is at the level of US$ 6,600. Based on these estimates, Indonesia is not even three quarters of the way yet to reaching the lower limit of a sustainable democracy, says Prof. Boediono. 

The Jakarta Post explains that Prof. Boediono’s per capita income figures are taken from Indonesia’s GDP based on the purchasing power parity, which reflects the difference in the cost of living among countries, as compared to the nominal per capita income, of which Indonesia’s has reached some US$ 1,600 at present.

Prof. Boediono further continued that other empirical studies, however, concluded that democracy is not the most determinant factor to economic progress since the rule of law is more determinant in economic output, especially in low-income countries. By accepting this theory, this means that poor countries are able to improve their economy despite the fact that they may not be ready for democracy.

Therefore, the first decision that must be taken at the outset of the democratic process, is to focus on economic progress in order to reduce the risks of political failure. Whereas, the underlying problems that face a democracy in transition is how to balance rationalism with populism, effective governance with representation, technocracy with democracy. This dilemma is, indeed, concrete and acute as Indonesia faces today. On the one hand economic development requires fast action and economic policies that must be rational, consistent, and based on a long-term vision, with the understanding that short term pain must be suffered to obtain long term gain.

On the other hand, however, the ongoing political system, which is still in transition today, does not support the taking of quick and decisive decisions. For the risks of taking rational decisions are also high, as most often short sighted interests dominate those with legislative powers but also in the executive, as no effective corrective mechanism yet exists.

Whatever the decision, however, there must be proper strategic balance between technocracy and democracy, since modernization and the road to democracy is long and winding. In this transformation process, the highest risks of failure lie at the outset of the process, that will taper off in the succeeding phases.

The prime requirement for the transformation process to succeed is, in fact, a nation’s capacity to survive and to maintain its cohesion along the entire length of the route. Which, in the final instance, depends on the social cohesion of this nation.

In this regard, Indonesia may be counted among those countries which have medium-strength cohesion. We are fortunate that Indonesia does no have sectarian rifts as exist in Yugoslavia or Iraq.

The other risk is economic stagnation, or worse still, economic crisis. When this happens then the transformation process will ground to a halt. For economic stagnation will enlarge the risks to democratic failure.

In Indonesia, ever since the fall of Soeharto in 1998, when the national demand was for democracy, transparency, the fight against corruption, and enforcement of the law, this country has seen four successive presidents within a time period of 9 years. Nevertheless, in spite of these frequent leadership changes, the political order (which is the commitment to democracy and pluralism) that had been the nation’s decision, did not change.

This consistency augers well for Indonesia’s prospective stability in the political system. Nonetheless, we realize that many democratic elements do not yet function according to expectations. Much still need to be done. But, the greatest risk lies in the fact if this nation should lose its stamina and élan to continue this arduous journey, or loses faith or patience with the apparent slow process of reform. 

When this happens, then this will indeed become a tragedy in our nation’s history. And, history has many examples where such situations already occurred.

One basic reality that must first and foremost be faced is the fact that today, economically Indonesia is still in the high risk zone. The best strategy, therefore, must be for this country to leave this danger zone as quickly as possible. Therefore, when Indonesia’s economy can grow by 7% annually, and with a population growth of 1.2%, then per capita growth can reach 5.8%. With this speed, Indonesia should enter the safe zone of sustainable democracy within nine years. However, if Indonesia’s GDP grows by less than 7%, then, of course, the time to be taken to reach this safe zone of sustainable democracy will take longer.

Therefore, without having to sacrifice the democratic process, this nation must strive to eliminate barriers to economic growth, which may emerge from the democratic process itself, or even because of excesses in this process.

 Indonesia must dare to take a clear strategic position in the balance between technocracy and democracy, that must be made for the sake of sustaining democracy itself.

In order to achieve this goal, a new middle class must be created whose function is to push forward the democratic process that is based on a broad-based economy. This new generation should not be one that luxuriates in consumerism, having benefited from windfall profits that have been obtained through the sale of natural resources. For, such a middle class will never fight for democracy, good governance and the rule of law. Rather they will create a quasi or ersatz capitalism that is full of cronyism, collusion and other monopolistic practices.

Instead, what Indonesia needs today is a new generation of middle class leaders that are both entrepreneurial and are imbued with the spirit of competitiveness, concludes Prof. Boediono.  

(Sources: Bisnis Indonesia, Jakarta Post)        (Tuti Sunario)