The markets: a fickle friend

UNESCO Courier, March, 1999 by Andreas Harsono

In Asia, financial crisis has thrust millions back into impoverishment and shattered faith in the ability of markets alone to address the problems of the poor. But can the region capitalize on the lessons learned from the crash?

Hadijah sits cross-legged on the floor inside her tiny, dimly-lit fin-roofed cabin in the Cilenggang area in the southwestern belt of Jakarta and tries to hide her embarrassment as she describes her attempts to find work.

"They say I'm too old," the 43-year-old widow mutters, referring to a South Korean factory and a German business centre not far from her house. Managers at both companies have rejected her job application.

Hadijah's fruitless effort began in October last year after she lost her job of 24 years as a tea lady at a Jakarta car spare parts manufacturer, which was badly hit by a sudden fall-off in demand in the wake of the Asian financial crisis that began its sweep across the region two years ago.

Meanwhile, rampant inflation has meant Hadijah spends far more money than before the crisis to buy food and to keep her only daughter in school. Prices of basic commodities such as rice, sugar, cooking oil and kerosene have increased, in local currency terms, three to five times what they were before the crisis hit.

Against a backdrop of awesome economic growth in the 1970s, 1980s and early this decade, the common wisdom across Southeast Asia used to be that the market was the key to eradicating poverty. To a large extent that indeed was the case. However, the financial crisis has shaken that faith and exposed the weakness of the economic trickle-down approach to poverty alleviation.

"The 'magic of the market' may work for those who have ready access to capital, information and skills," Indonesia's education and culture minister Juwono Sudarsono last August told an international seminar on Indonesian reforms, "but not for those who lack education, skills and well-placed connections."

According to Indonesia's Central Bureau of Statistics, the number of people living below the poverty line - those who consume a minimum 2,100 calories a day - had soared to 95.8 million or about 48 per cent of Indonesia's total population of 202 million by the end of 1998.

It is indeed a huge setback. In 1976 Indonesia had 54.2 million poor people or 40.1 per cent of the whole population. But by 1996, after two decades of rapid economic growth, the world's fourth most populous country had reduced the number of the poor down to 22.5 million or 11.3 per cent of the population.

Economic recovery is vital if the trend is to be reversed. However, as a World Bank report points out, the rapid economic growth of previous years had papered over long-standing problems with regard to poverty alleviation. Among these are persistent pockets of poverty and rising inequality, weaknesses in labour rights and need for social security nets.

"A rapid return to macroeconomic stability and growth through distributionally favourable adjustment policies is the only way to begin to put a floor under falling incomes of the poor," says the World Bank report.

In Indonesia, as in many other parts of Asia, households by and large have few formal mechanisms to protect them from poverty resulting from job losses, disability or aging. Instead, most rely primarily on personal savings and informal family and community links. But the financial crisis has cut so deeply that those buffers against poverty are proving to be too thin for comfort.

Hadijah, for example, spent 1.5 million rupiah of her separation pay to build a small food vending stand in front of her house last December. A niece contributed 0.5 million rupiah to buy basic commodities. At the end of the month they are able to take home a paltry 150,000 rupiah, under $20 at recent exchange rates.

But not everyone has even that frail survival mechanism and the result has been the worst social tension and violence seen in decades.

Crime triggered by hunger

Amid mounting ethnic and religious tension, riots and looting have taken place in Indonesian towns and villages as demoralized soldiers do nothing but look on. One of the worst riots took place in Jakarta on 14-16 May 1998 when thousands of looters ran amok attacking properties owned by ethnic Chinese, whose economic prominence in this country has made them a target. More than 1,200 people were killed, mostly in burned supermarkets, and many Indonesian women of Chinese descent were sexually harassed. Even outside of riots, looting has become a major problem, with highwaymen along an important mad linking Jakarta with Surabaya, Indonesia's second most populous city, simply stopping the drivers and taking over the trucks loaded with food

Ironically, the devaluation of Indonesia's currency since the crisis broke, along with rising food prices, has caused a huge shift in the internal terms of trade in favour of farmers, while palm-oil and cocoa producers have benefited from soaring world prices for their produce. The World Bank says rural consumption has increased 10 per cent over the past year.