Until the
onset of the 1997/98 economic and political crisis, the Indonesian economy has
grown by an average of 7 percent per annum. The economy experienced a slowdown
in the mid-1970s and again in the mid-1980s when the world economy was in a
recession. Each time, however, the Indonesian economy was able to come out
stronger, as the 'crises' forced the government to undertake the necessary
reforms in order to sustain the country's economic growth.
Sustainable
development as is understood in Indonesia is not only about economic growth.
From the mid-1970s on it has been defined as involving three main elements,
namely a sufficiently high economic growth, improved distribution of income and
the fruits of development, and national (including economic) stability. This
so-called 'trilogy of development' in essence proposes a kind of 'balanced
development' in which growth will not be pursued at the cost of creating
instabilities and a worsening in the distribution of income. Also, concern with
distribution and equity issues should not lead to the adoption of policies that
would result in economic stagnation. National stability is important but the
pursuit of monetary stability, for instance, should not be at the expense of
growth and welfare.
The strategy
of development, nonetheless, is one that is growth oriented. It attempts to
achieve growth with distribution and stability. Sound macroeconomic policies
were adopted to achieve economic growth and stability. For many years, the
government has strictly adhered to policy prescriptions that it has set for itself.
These include the principle of a balanced budget, a current account deficit of
no more than 2 percent of GDP, and a limit to external borrowing to maintain a
debt-service ratio (DSR) of less than 20 percent. Distribution objectives were
pursued through a policy of developing 'eight channels for more equal
distribution' that is meant to improve access of the poor to basic health,
education and training, job opportunity, credit, etc. A significant portion of
the national development budget has been devoted to the agricultural sector,
rural development and the provision of basic needs. It can be shown that
progress has been made on many of these fronts. Most widely quoted has been the
success in the reduction of the numbers of people living under the poverty
line, from 70 percent in the late 1960s to 20 percent in the early 1990s.
Gini-coefficients to denote relative income distribution have not seen a
significant deterioration. Moreover, those indicators suggest that income
distribution in Indonesia is better than in many other large developing
countries.
In the case
of Indonesia, the crisis has underlined the importance of governance and a
strategy of development that can effectively respond to the challenges of
globalisation. In policy terms, the challenge to Indonesia is how can it make a
credible commitment to maintaining its open economic policies and to good
governance. The next section reviews the process of economic liberalisation in
Indonesia and efforts to make a credible commitment to open economic policies.
This will be followed by a review of the governance structures, in terms of the
broad institutional setting and policymaking processes in the economic field.
The final section outlines the main issues that Indonesia has to address in
responding to the challenges of globalisation.
Exercises :
1. Translate the
above reading into Bahasa Indonesia!
2. Give underlines
for the tenses that you know!
3. How is your opinion about economic crisis in
Indonesia in 1997/1998?
4. How is your idea about the impact to banking?
