Global Policy Forum

By Berni K. Moestafa

Millions of Indonesians will remain poor if the government sticks to its current poverty alleviation strategy that focuses on economic growth, but neglects the country's rural economy, said a poverty expert on Wednesday. University of Gadjah Mada economist and noted poverty expert Mubyarto lashed out at economists who continued to preach that economic growth was the only strategy to alleviate poverty.

This approach did not work before the 1997 financial crisis and remained ineffective after the crisis, he said. "Five years after the crisis, many people, including noted economists, still don't understand the real nature of poverty in Indonesia," Mubyarto said in his paper presented at a workshop on evaluating poverty alleviation programs organized by the Ministry of Foreign Affairs, and the United Nations Economic and Social Commission for Asia and the Pacific (UN-ESCAP). The high leakage of funds from the social safety net program launched after the 1997 crisis was one example of this failure. He said much of the funds went to people who were not poor.

The government forgot the rural economy when it thought that mass lay-offs in various industries during the crisis had produced millions of new poor people, he explained. "They (economists) never see or never want to see the growing ekonomi rakyat (people's economy), which has absorbed unemployment from the formal sector," Mubyarto argued. Instead, the government insisted on prescribing policies that were macroeconomic-heavy to boost economic growth and help the poor. However, worshiping growth kept scarce capital limited to only a few business sectors, leaving out the informal sectors or the rural economy. Before the crisis, the fallacy of this approach was already apparent.

Indonesia's economy, which expanded rapidly over almost three decades, failed to distribute the subsequently accumulated new wealth equally among its population. Capital was confined to the local conglomerates and to multinationals that drove the economy. Mubyarto said the gap between rich and poor became wider over the years, eventually leading to the violent student protest known as the Malari Affair in 1974. "Even if the Malari Affair had prompted the government to issue various equity programs, it was not sufficient to encourage the shift in development strategy away from a growth-oriented to an equity-oriented strategy," he said. And the unbalanced strategy continued after the 1997 crisis, he added.

Around US$60 billion in government bonds was issued to raise funds to help banks recover from the crisis. Many of these banks were ailing because they had become cash cows for the business groups of their respective owners. When the crisis quashed those businesses, the banks were left with around $43 billion in bad loans. Despite the costly bail-out program, however, the banking sector remains fragile almost five years after the crisis. Tax payers, meanwhile, are still paying for the $60 billion government bonds, plus their accumulated interest. "This bank recapitalization program is the most recent and clearest proof that the inequitable policy sides with the conglomerates on the one hand, while it neglects the economic aspirations of the 'little people' on the other," Mubyarto said. The government should aim for an equal distribution of wealth. This, he said, would vitalize the rural economy on which most of the poor now depend to survive.

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