Wednesday, May 29, 2024 | 15:34 WIB

Going beyond the fundamentals

Irawan Ronodipuro

IO – If you were to believe members of Jokowi’s economics cabinet, the Indonesian economy is in great shape.  Over the past week alone, we have heard the president himself talk incessantly about the economy’s strong fundamentals.   Finance minister Sri Mulyani was quoted in the local press saying that despite the strong depreciation of the rupiah, we should not worry.  Wimboh Santoso, chairman of the Financial Services Authority, backed Mulyani by saying the financial sector would remain resilient despite the rupiah’s decline.  And finally there was Tom Lembong, head of the Indonesia Investment Coordinating Board, who crooned about the latest data on foreign direct investment, claiming the slight increase over last year’s data is a result of the Jokowi administration’s policy reforms.

All of this sounds fine.  Markets tend to take comfort in the Jokowi cabinet’s macroeconomic management.  Typical indicators of an economy’s health, such as public debt ratios, money supply, interest rates, inflation and GDP growth, are the lens though which the so-called ‘markets’ grade the health of an economy and, to be fair, with some exceptions, Indonesia is doing relatively well on the macroeconomic scorecard.

Yet, something is profoundly wrong with the way the current administration thinks about its role as guardian of the Indonesian economy.  Jokowi and his economics czars have, like many of their predecessors in office, fallen into the trap of thinking the macroeconomic fundamentals are the beginning and end story of managing the economy.

But there are other parts of the Indonesian economic story, ones I would argue are equally critical as inflation and interest rates, which have unfortunately fallen to the wayside.

Few people in power today are talking about the issues that are hidden from view from the macroeconomic data we talk about incessantly.  Obsession with wealth creation has overshadowed the questions we should be asking about the outcomes of policy and how they address the needs of the less fortunate.  What has the government done to  ensure a better life for its citizens?  Have their policies addressed values such as fairness and equality? Are they just?

Middle- and upper-class Indonesians, many of whom care little about collective action for the collective good, would probably find such questions as a bit odd.  They can hardly be faulted, for much of the rest of Asia and the West included have fallen prey to the contemporary mindset of selfishness and materialism.

When it comes to the most important economic issue Indonesia is now facing, namely the growing disparity between the rich and poor, in truth there have been few successes under the Jokowi administration.

The gini coefficient, which measures wealth gaps, has worsened since Jokowi first came to power.  If you ask the average Indonesian if they feel better off today than when Jokowi won the presidency, a large number would answer in the negative.  And little wonder:  household net incomes for middle- and lower-income classes have plummeted with the reduction in electricity and gas subsidies and higher food inflation.

Recognizing the fact many Indonesians have seen a considerable decline in their welfare over the past four years, this past week Jokowi announced a shift in state spending from infrastructure to poverty alleviation and inequality reduction.    Jokowi’s flip-flop, from prioritizing infrastructure at the expense or social welfare and now in reverse, is undoubtedly a tactic to raise his popularity before next year’s presidential election.  In fact it might boost economic growth by putting more cash into the hands of lower-class income consumers, but is it really a sustainable solution?

Clearly, more than subsidies are needed.  Examples include Jokowi’s subsidies for lowering costs for education and health care.  Cheaper access was much needed, but if we look at the reality, the core question of how to improve the quality of life for lower-class Indonesians on a sustainable basis remains unanswered.

More poor Indonesians can now access hospitals and send their children to school, but the policy issue of how we can improve the quality of these public services has not been addressed.  Compared to our peers in the region, Indonesia ranks towards the bottom in human development.   More Indonesians can now enter a hospital when they are sick, but many public healthcare centers lack sufficiently qualified doctors, nursing staff and the medical equipment needed to bring proper care to patients.  Our school system suffers similar maladies of poorly trained teachers and antiquated curriculae.    Unless the government cures these deficiencies, it is near impossible for most Indonesians to succeed in securing a better future for their children.

Coming back to my argument about the macroeconomic fundamentals, it is time for the political classes to stop deifying the markets and paying slavish attention at the altars of the accumulation of wealth and growth rates.   Instead, we should be asking how our policies affect society-at-large and, in the end, serve the common good.