Asia’s GDP – Gross Domestic Problem

July 13, 2004
Singapore Democrats

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William Pesek Jr.
Bloomberg
12 July 2004

The article below discusses problems with GDP growth in Indonesia. It applies to Singapore as well. With GDP percentage growth bounding at the rates the PAP Governments claims that it is coupled with increasing joblessness, backruptcies, and worry about structural unemployment, it is time that a so-called economic growth is measured by how the average working citizen, rather than the ruling class, benefits from it.

From his office window overlooking Jakarta’s skyline, Satish Mishra can see a Starbucks, a Marks & Spencer and a Sogo department store. The UN economist is tempted to read the success of these upscale names here as a manifestation of Indonesia’s 5 percent growth.

He knows better. Mishra also has a graphic view of the dilapidated tenement villages and poverty that surround Jakarta’s swanky cafes and shopping plazas. They tell the story gross domestic product figures don’t: strong growth isn’t reaching the vast majority of this nation’s 235 million people.

“There’s a tendency to look at GDP and say Indonesia’s economy is fine,” says Mishra, 54, head of the United Nations Support Facility for Indonesian Recovery. “But it’s job creation that matters, not GDP, and that’s this country’s big problem.”

It may seem obvious, but it is one that gets scant attention from governments and investors in Asia.

Throughout the region there’s a tendency to mask economic challenges with headline growth rates. From Seoul to Jakarta and from Beijing to Manila, governments use them as a form of advertising as well as a diversion. Rapid growth gets investors’ attention and helps economies paper over their cracks.

Nowhere is this more true than in China. Its 8 percent growth eclipses major challenges and neutralizes criticism over its records on human rights and the environment. Standard & Poor’s said last week China’s banks are the most vulnerable in the world to a crisis and a bailout would cost about $650 billion.

Digging Deeper

Indonesia also covers its blemishes with high GDP rates. In last week’s election, Megawati Soekarnoputri played up macro-economic stability during her three years as president. That she’s set to come in second in the election indicated healthy growth isn’t trickling down very far.

More than 40 million Indonesians are unemployed and at least half of the population lives on $2 a day. On average, workers earn no more today than they did in 1997. The nation also lacks a sizeable middle class; strong GDP growth is only touching a small number of consumers high in the economic food chain.

That’s where Mishra comes in. In the waning days of the 1997-1998 Asian crisis, there was a feeling within the UN that Indonesia could use a UN think tank to help plot strategy for its economic recovery. As one of Asia’s most fragile and geo-politically important economies, it seemed an appropriate test case for such a venture.

Job-Formation Drive

In the summer of 2000, the United Nations Support Facility for Indonesian Recovery began in earnest. Since then, Mishra and his team have gone deep beneath the surface of one of Asia’s most neglected financial systems. He has concluded that jobs, not GDP, must be the new slogan for the future of the world’s fourth most-populous nation.

Fast growth rates are difficult to resist, yet Mishra sees the fascination with GDP as a carryover from the politics of the Suharto era, one that ended badly in 1998. Government programs must touch the lives of average Indonesians, not just the ones who became well off under former President Suharto.

The key isn’t faster growth, but better growth. “Progress in economic terms must be measured not by GDP or the confidence of foreign investors but in the way in which the lives of our people are changed by it,” Mishra says.

That and more job creation will help spread democracy and maintain political stability. That’s especially true considering Indonesia has the world’s largest Muslim population. Democracy, after all, doesn’t often fair well in the Muslim world.

Difficult Choices

Success will come when the public sees credible government policies, less corruption, a sound legal system and better education and welfare programs. The risk is that Indonesia falls back into the Suharto-era trap of measuring the nation’s progress — socially and politically — with statistics alone.

While all this may sound like nongovernmental organization mumbo jumbo, it’s not. Indonesia is but one example of an Asian government believing tough choices can only be made when things are booming.

Consider Indonesia’s debt situation: its $208 billion economy is $135 billion in debt. Stronger growth won’t reduce debt faster than policies aimed at borrowing less. Economies including Japan, the Philippines, Singapore, South Korea to varying degrees often see faster GDP as the solution to their problems.

The Asian crisis proved fast GDP growth is an optical illusion of sorts. Nations growing at 8 percent or even 12 percent were devastated because ground-up economies were far behind the top-down ones. GDP rates were an economic temptress, as investors seduced by them learned in the late 1990s.

Mishra is right when he says Indonesia needs to turn such thinking on its head. If you build a better micro-economy, the macro one will thrive, too. It’s something leaders throughout Asia might consider before trumpeting the latest statistics.

“This focus on GDP alone is like the marathon runner who sprints from the beginning,” Mishra explains. “You know he’s going to lose. Economies can be a lot like that.”

To contact the writer of this column:
William Pesek Jr. in Jakarta at [email protected]

To contact the editor responsible for this column:
Bill Ahearn at [email protected]