Indonesia needs to sell off its state assets to pay for a big increase in education spending
To understand how bad things are in Indonesia these days, consider this fact: the number of unemployed exceeds the population of Argentina.
It gets worse. Besides the 40 million or more Indonesians out of work, roughly half of the country's 210 million people live on about $2 a day. All of this provides some insight into why there's so little optimism for the Indonesian economy. And why it's hard to be optimistic about the future.
Things would seem less dire if changes were afoot to alter the nation's fate. In some ways, they are. Five years after the start of the Asian financial crisis, Indonesia's macroeconomy is stabilising. Even if president Megawati Soekarnoputri isn't a firebrand of new ideas and initiatives, she has managed to restore an air of calm to Indonesia's turbulent government.
In more important ways, though, things are deteriorating. Little thought is going toward the future, like improving education and health care. Politicians are focused on the challenges, or self-interests, of today. Maintaining stability in a nation that's had three leaders since president Suharto's 32-year dictatorship ended in 1998 remains the priority.
Against this backdrop, the question is whether the ongoing rally in Indonesian stocks makes sense. The Jakarta Composite Index is up an eye-popping 23% this year. The buying spree reflects the improved macroeconomic environment, including the government's expectations for 4% growth this year. That's on top of 3.3% last year.
The rupiah, which plunged 85% during the Asian crisis, has also stabilised. Progress has been made in selling state-held assets. While the International Monetary Fund wants Jakarta to reduce poverty, it compliments Indonesia on its 'improved macroeconomic conditions'' that have stabilised its markets, reduced interest rates and paved the way for $350m in new loans.
That's the good news. The bad news is that for every investor buying Indonesia stocks, far more avoid them. This year's plunge in private capital flowing into the nation more than demonstrates the point. In the first five months of the year, Jakarta approved 58% less new foreign investment than it did in the same period in 2001.
Hopefully investors are paying attention to the single biggest problem facing the nation: education, or the lack of it.
One-third of the population is under 15 and is not being adequately educated to compete in the age of globalisation. In a world where information and ideas are more valuable than manufacturing goods, Indonesians risk being left further behind. Poor healthcare, and limited access to it, is another big problem.
'The impact shows up slowly, over generations,'' says Mark Baird, country director for Indonesia at the World Bank. 'Over time, it will really affect future generations of Indonesians and the country's ability to compete in the global market.'
The 1997-1998 financial crisis set many households back decades in terms of living standards. Even when Indonesia was growing 7% a year during the Suharto years, observers fretted about inadequate education. In the years since, however, the emphasis has moved elsewhere. Megawati has been increasing education funding but it's woefully inadequate in a nation where fewer and fewer families can afford to send kids to school.
Indonesia's education crisis requires far more attention at the highest levels of government. It's also one of the best reasons to step up the process of selling state-held assets. Along with using the proceeds to pay down government debt, Jakarta should allot a greater portion for education and healthcare.
'All of this has become a human rights issue and a very important one at that,'' says Todung Mulya Lubis, a human rights activist. 'It's an important economic issue, too.''
Bloomberg newsroom, Jakarta
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