Deferring tough decisions
'Borrowing from abroad does not mean selling out our country,' President Suharto, said to the Indonesian Parliament last August. Strongly denying that Indonesia's mounting external debts would burden future generations, Suharto claimed that borrowing capital, technology and skills from abroad would enable Indonesia to take 'a shortcut along the path to development'. Future generations would inherit 'development projects producing fruits which will be theirs just for the picking.'
The President was defending his Government against domestic criticism of Indonesia's increasing reliance on foreign aid to keep the economy moving. Yet the critics - who include university staff and students, opposition politicians and sections of the press - remain sceptical. And not without reason. Loans and grants from abroad account for 42.4 per cent of Indonesia's development budget during the Third Five Year Plan (1979-84), compared with only 34.6 per cent during the Second Five Year Plan (1974-79). Moreover, the country's external public debt stood at $16.34 billion at the start of 1978, making Indonesia the world's fourth largest debtor country.
Huge inflows of official development assistance have undoubtedly helped the Indonesian Government drag the economy out of the stagnation of the 1960s. Manufacturing industries have burgeoned and GNP growth has sailed along at a fast clip of 8 per cent annually.
Schools and health clinics have also been constructed apace, and family planning has notched up impressive achievements. During the past decade, fertility in Java and Ball (where two thirds of the country's 140 million people live) has fallen by 15-20 per cent.
But there is a dark side to the picture. The benefits of rapid economic growth and official development assistance have been concentrated mainly in the hands of a small urban elite and better-off farmers in rural areas. At least 60 per cent of the Indonesian people have felt few, if any, improvements in their living standards during the past decade. Reports by Government-sponsored research institutions have highlighted the following problems since 1970:
* Stagnating or only slightly rising real wage levels for unskilled workers in both rural and urban areas.
* Decreasing calorie intake levels among the bottom 40 per cent of the rural population.
* Frequent rice crop failures due to attacks on high-yielding varieties by rats, leafhopper and other pests.
* Rapidly increasing landlessness, especially in Java. About seven million households (nearly half the total) are landless or almost landless. They depend on irregular work as agricultural labourers, construction workers, petty traders and pedicab drivers.
Indonesia's development planners are virtually unable to handle the rush of loans and grants offered by would-be aid donors and large backlogs have formed in the aid pipeline. There is so much foreign money chasing scarce development projects in Jakarta that staff of aid agencies and development banks often find themselves in the ludicrous position of competing with one another for projects to fund. Large schemes proposed by the Indonesian Government are snapped up like hot cakes, with remarkably little scrutiny. Poorly planned projects are implemented inefficiently. Cost overruns are frequent and the economic rates of return on projects are lower than hoped.
Recognising that aid and development strategies based only on large-scale growth had failed to solve the problem of massive poverty in rural areas, the World Employment Conference in 1976 launched the concept of 'Basic Needs' as the new development gospel (seepage 10).
Though attractive in theory, the Basic Needs model contains a minefield of social, political, cultural and economic problems. Moreover, the model is mute on the role of foreign technology, expertise and capital in achieving basic needs in developing countries.
Nevertheless, development banks and aid agencies now feel obliged to pay at least lip service to the Basic Needs model in order to justify their programmes. But this is mostly window-dressing. The newstyle development projects, supposed to bring 'immediate and direct benefits to the poorest of the poor', are usually out of touch with reality. The poor whose basic needs have to be met have no say at all in the design of projects affecting them.
The British Government has funded an irrigation project using underground water in the barren Gunung Kidul area of southern Central Java. Local farmers were at first reluctant to use water from the 28 tube wells, which were virtually idle for periods of one to three years except for use on demonstration plots. But with the date of the opening ceremony rapidly approaching, the local Regent decided to act tough and threatened to sack all village heads who could not persuade farmers to utilise the irrigation water. This produced results. By the time the project was officially opened, over half the command area of 1,270 hectares was under irrigation. But the farmers themselves still have doubts about the irrigation scheme, which none of them had ever requested in the first place. The project was simply 'dropped' from above and they had no say at all in designing it.
In fact the Gunung Kidul irrigation scheme, like others of its type, is simply part of a 'package' rice intensification programme in which farmers are forced to accept credit in the form of fertilisers, insecticides, working capital and highyielding rice varieties in order to produce yields high enough to be able to pay the high running cost of the diesel pumps. These high-yielding rice varieties, however, are highly vulnerable to infestations of rats and insect pests such as the brown leafhopper. Who will get the Gunung Kidul farmers out of debt when they suffer repeated crop losses from pest attacks? Will they, like many other small farmers in Java, be forced to sell their livestock, household possessions and even their land in order to clear their debts?
Of all the agencies active on the development scene, the World Bank is probably the most poorly equipped to handle projects orientated towards Basic Needs. The Bank's workstyle is to send teams of foreign consultants (hardly any of whom even speak Indonesian) on whirlwind, two or three week 'missions'. Decisions are made under enormous pressure to land the maximum amount of money as quickly as possible. This blitzkrieg approach is totally inappropriate for dealing with projects involving complicated problems such as participation by low income groups in decision-making. World Bank schemes are invariably overfunded and tend to smother the very community participation which they are supposed to foster.
Neither the Indonesian Government nor the development banks and bilateral aid agencies are committed to implement the more radical structural reforms proposed by the Basic Needs model. The present system of offficial development assistance is working very nicely for both the 'donors' (or lenders) and the Indonesian Government authorities.
Virtually all official aid, whether loans or grants, returns to the ‘donor' country in one way or another. Foreign manufacturing and consultancy firms, for example, do very well out of 'tied' aid. (See page 8)
Aid donor governments gain a great deal of political and economic leverage from their assistance to Indonesia. For example, Indonesia keeps its oil prices lower than most other OPEC members because it is anxious not to upset U.S. Congress by appearing to side with the more militant OPEC states.
Official development aid provides the Indonesian Government with a range of soft options, enabling it to sweep under the carpet a number of critical problems which must be solved if any progress is to be made towards fulfilling the basic needs of all Indonesians. Tough decisions must be made in fields such as:
Tax reform: The Government has done very little to tax the wealth of its own high - income groups. Economic analysts from USAID estimated that in 1976 a flat 15 per cent tax on the upper 20 per cent wealth bracket would have been equivalent to half Indonesia's oil revenues. But as long as loans and grants from abroad keep filling the Government's coffers, it feels no need to grasp the nettle of tax reform,
Land: The Government is diverting public attention from serious problems of land tenure and land use, especially in Java. The Government wants to relocate 100,000 families annually for the next five years. But landlessness, soil erosion and speculation are basically political problems which the Government must come to grips with sooner or later.
Decentralisation of decision-making: The basic needs of Indonesia's low-income groups will never be met by the present highly centralised power structures and 'top-down' decision-making processes. The people whose basic needs have not yet been met must be given a greater say in determining what their needs really are.
But allowing people greater freedom of expression and organisation entails political risks which the Indonesian Government is unwilling to take. It is easier to maintain the present system, in which decisions flow from the top downwards, and no questions are asked.
Corruption throughout the Indonesian Government bureaucracy is generally believed to absorb 15-20 per cent of official aid. Yet development banks and aid agencies protest only feebly - if at all. By pouring funds into a power structure which is oppressive, wasteful and corrupt, aid helps to strengthen and legitimise the very system which denies the poor a voice.
Borrowing technology, expertise and capital from abroad may well put Indonesia on a 'shortcut to development', as President Suharto claims. But the question is, what sort of development? National stability and economic growth, seem certain to take precedence over equity.
For the poor - the landless labourers, pedicab drivers, petty traders and hawkers - President Suharto's 'shortcut' appears to be a deadend.
'Who will pay the health workers?'
'That World Bank project is just killing our morale. It's not aid at all. It kills community spirit.' These are the words of Subroto, a volunteer health worker in a Jakarta kampung (slum) giving vent to his anger over a World Bank-funded health project in a neighbouring kampung.
'We started our own health project here 3 years ago,' Subroto continued. 'The Government health service trained four of us as health workers, and we formed a small fund to buy medicines. Most families in the Kampung pay $ 0.06 or $ 0.13 every month into this fund. But we don't get a salary, and we don't have a building. We keep the medicine box here at my place, and people come here in the afternoon for treatment.
In the neighbouring kampung, however, the World Bank paid for the construction of a smart building and also provides a monthly honorarium of $11 for each of the 12 health workers over a 3-year period. The kampung inhabitants have not started a fund to replace the medicines supplied by the World Bank loan to the Indonesian Government.
'Now people in our kampung are asking why we don't have a building and why we should pay for medicines while their neighbours get them for free,' says Subroto. 'You can't blame them, can you? But before the World Bank moved in next door with its fancy building and salaried health workers, our self-funded project was running really well.'
According to Dr. Suleiman of the Government health service, the World Bank project is 25 times more expensive than the self-help project in Subroto's kampung, for which the Jakarta municipal Government provided basic training and a small supply of medicines only.
Dr. Suleiman helped setup 143 self-help health posts of this kind. He also helped train health workers for the World Bankfunded programme, which has established 14 health posts at a cost of $12,800 each.
'But I had nothing to do with planning the World Bank project', he says. 'That was done at a higher level. With all that money, I could have set up 250 posts, not just 14. Special buildings aren't needed, and neither are salaries. Who will pay the health workers when the project finishes? Smothering people with aid they've never asked for is no way to get community participation. Anyway, the project is so expensive that our Government will never be able to replicate it anywhere else.
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