In a Crisis, Who Supports Whom?

In Jakarta some time ago, I had a heated debate with a World Bank lead economist. We had different opinions about who should actually pay for the cost of economic recovery, after the rupiah plunged in the international money market and then spread to the monetary sector and the real sector. This debate started from several simple questions that – to my knowledge – always arise from the economic recovery scenarios advocated by the World Bank and the International Monetary Fund (IMF). The questions were; doesn't the government bear the risk of saving the private sector by taking over collapsed banks? Isn't the private sector also the one who will profit when the bankrupt banks have been recapitalized and then privatized again?

In simple terms, the economist explained one of the reasons that prompted the government to take over private banks that were in default. With the illustration of a bank's balance sheet, according to him, the government ensures that all depositors can get their money back because the government injects bail out funds on the liabilities side of banks experiencing a liquidity crisis. That is why, some time ago, banners were displayed in front of bank offices explaining that public funds are safe because they are guaranteed by the government. That is also what caused the brochures of a number of banks that were previously privately owned to now be marked; Government Owned.

It makes sense. In fact, the economist said that the government is willing to bear an additional domestic debt burden of US$ 85.7 billion for bank recapitalization that is based on the public's interest in their funds deposited in banks. This additional burden will ultimately burden the state budget (APBN) and reduce the government's ability to fund its activities and investment to stimulate economic recovery and - this is the most important - the provision of public goods and social services in the form of education and healthcare.

Who is the Community?

Here the question arises; who exactly are the people or the people referred to in the heroic story of saving the bankrupt banks? From the economist's perspective, the people are the owners of deposits and savings in the banks. An easy-to-understand answer. Then, who exactly are the people in the context of the government's declining ability to finance social services? Unfortunately, we did not have time to debate this question. And the answer is; one class in the structure of Indonesian society that is easily identified as vulnerable people, less developed people, or poor people.

These two answers do not point in the same direction, although they may overlap. Some poor people may have savings in banks. However, it is not debatable that some of the owners of large deposits in these banks are not poor. They are the rich or perhaps very rich. They may also be giant debtors who help drain bank liquidity. This is another society that exists in the economist's perspective but is never mentioned.

This layer of bank liquidity drain, more or less benefited from the banking rescue efforts carried out by the government through the National Bank Restructuring Agency (BPPN). The logic is simple. By taking over the dilapidated banks, the government through BPPN temporarily took over the obligations of the giant debtors who were in trouble so that depositors' funds could still be withdrawn. The intention was, the stubborn debtors would be pursued later. However, until now it is clearly visible how difficult it is to get these big debtors to fulfill their obligations to pay their debts.

Even though BPPN has taken various steps – including ultimatums and slightly embarrassing the stubborn debtors by announcing their categories and names – the money that was stolen is not easily returned. And legal handling for them is also faltering. So, it seems really nice to be a bad debtor in this country as long as there is a government and BPPN that wants to save the banks.

Returning to the so-called poor society, statistical data shows that the number of those living below the poverty line has exploded from 23 million people (11 percent of the total population) in 1996 to double, 50 million people (24 percent of the population) in 1998. This means that, as the report of the Japan International Cooperations Agency (JICA) seminar on Indonesia's economic recovery in Tokyo some time ago noted, Indonesia needs 5-10 years to return to the pre-crisis situation. The reason is, with an average economic growth of 6.2 percent per year, Indonesia needs 12 years (1983-1995) to reduce the population to only 13 percent. This situation means that the problem of the poor cannot be treated as a short-term problem but must be considered as a medium-term or even long-term problem.

This sharp increase in the number of poor people feels very contrasting when we find many misappropriations of the social safety net (JPS) program or more substantially, namely the reduction in the social budget in the APBN which has shrunk by more than half over the past three years. In fact, the government's budget to support them should be directly proportional to the number of poor people. That what happened was the opposite, the government's reasons for that felt classic and repetitive; the country was being hit by misfortune so everyone had to tighten their belts. It is important to note, that is also what the World Bank and the IMF recommend with the keyword sound economic management.So, it is not surprising that the government then cut all forms of subsidies, from fertilizer to fuel oil.

Even if belt tightening and all forms of austerity are part of what is meant by sound economic management, where can we find consistency at the level of policy implementation? It is indeed rather difficult to find where the consistency of government policy is. On the one hand, the government cuts all forms of subsidies but on the other hand, increases the salaries of its high-ranking employees, thus creating a gap as well as jealousy among low-ranking government employees.

On the other hand, the government still allows the salaries of top management of state-owned enterprises (BUMN) to be so large plus various luxurious facilities. Once the government declared its intention to restore conditions and reduce the burden on the economy. But at the same time the government continues to collect debts from abroad and domestically without calculating the risks and its capacity to repay. Once the government intended to eradicate corruption but not a single case was resolved satisfactorily.

With that inconsistency, it seems true that savings only apply to the poor, who in this time of crisis are actually unable to save any more. The problem is, for what and who should the poor save and give up their rights to receive government services not being fulfilled?

Model Protective Shells

Surrounded by a prolonged crisis, the government and political elites are basically under threat of a legitimacy crisis. This is a direct consequence of their claims on state institutions that are not fully supported by society. However, according to the earliest model of state-civil society relations, political elites at all costs continue to try to dominate society, through the state.

Thanks to their control over state apparatus, while civil society's access to the instrument is very limited, political elites have the freedom to position themselves, as well as the weak position of civil society. With some assumptions, the issue of legitimacy of political elites will be easily overcome because they can play the relationship between the state and civil society in a crisis situation.

In the protective shells model, the state becomes the outer shield of civil society against any pressure. However, this model assumes a state built from societal consensus, with some variations in both the East and the West.

However, for a country that is built on the claims of political elites like Indonesia, it is actually civil society that is the country's protective jacket that is instrumentally exploited by political elites for their own interests.

For the case of savings in economic recovery efforts, it is true that civil society, especially the poor who have not been empowered, become the protectors of the existence of the state that is being ridden by the interests of the political elite. Even sadder, the political elite has never made a serious effort to maintain the resilience of its protective jacket, but rather the 'fat lice' on its body that also take advantage of the sacrifices of the poor. It seems that the distance from the situation of the state and civil society overlapping, or at least the equality of civil society and political society in the identity of the state is still very far.

Wahyu W. Basjir, direktur Institute for Development and Economic Analysis (IDEA)