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TERM PAPER GEO 302/424
ECONOMIC AND SOCIAL CHANGE IN DEVELOPING COUNTRIES
- SOME ASPECTS OF GLOBALISATON IN INDONESIA
Norwegian School of Economics and Business Administration Submitted: Wednesday 3 March 2002 Submitted to: Professor Egil Glørud Submitted from: Karoline Engjaberg [email protected] Birgitte Brevik [email protected] Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 2
Martha Torvik [email protected] Henning Lunde [email protected]
CONTENTS
1 INTRODUCTION...... 3
1.1 GENERAL INFORMATION ABOUT INDONESIA...... 3 2 POLITICAL AND SOCIAL ASPECTS...... 5
2.1 POLITICAL BACKGROUND...... 5 2.2 CONFLICTS WITH ROOTS IN ETHNICITY...... 6 2.3 THE CHINESE ROLE IN INDONESIA...... 7 2.4 POLITICAL ACTIVITIES...... 7 2.5 INEQUITY AND DEVELOPMENT...... 10 3 TOURISM...... 14
3.1 HISTORY...... 14 3.2 CONTRIBUTING TO SUSTAINABLE DEVELOPMENT...... 15 3.3 TOURISM IN INDONESIA...... 17 3.4 VISITORS AND NUMBERS...... 17 3.5 NEW REGULATIONS...... 18 3.6 INDONESIA TOURISM RECOVERS FROM CRISIS...... 19 3.7 SUMMARY...... 21 4 MACROECONOMIC ISSUES...... 23
4.1 BACKGROUND...... 23 4.2 THE ASIAN CRISIS 1997...... 24 4.3 CHANGE...... 25 4.4 CRITICAL VIEW ON IMF...... 26 4.5 CHALLENGES...... 27 5 TRADE, LIBERALISATION AND POVERTY...... 28
5.1 INTRODUCTION...... 28 5.2 FIRST PHASE OF DEVELOPMENT AND LIBERALISATION (1970 - MID 1980S)...... 29 5.2.1 Impact on poverty, inequality and growth...... 29 5.2.2 Rural-urban dimensions...... 30 5.2.3 Regional Dimensions...... 30 5.3 SECOND PHASE: RAPID LIBERALISATION AND OPENING UP (MID 1980S – 1997)...... 31 5.3.1 Impact on poverty, inequality and growth...... 31 5.3.2 Rural-Urban Dimensions...... 32 5.4 THE 1997 ECONOMIC CRISIS...... 32 Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 3
6 CONCLUSION...... 33
1 INTRODUCTION
Globalisation has been a "hot topic" for some years now, especially after the Asian Crisis in
1997 and the WTO Summit in Seattle in 1998. In this paper we would like to focus on
Indonesia, a country that was hit particularly hard by the 1997 crisis, and the impact that some aspects of globalisation has had on the country and its population. First we will describe the political and social background of the country. Secondly, we will discuss tourism's role. Then we will look closer into the 1997 crisis in Indonesia. Finally, we conclude by looking at how trade and liberalisation has impacted on poverty.
1.1 General Information about Indonesia
The name Indonesia was derived from "indos nesos", meaning islands near India, The country is in fact the largest archipelago in the world with a thousand islands, 17.508 to be precise, spread in an area between the Asian continent and Australia, and between the
Pacific and the Indian oceans. The islands are inhabited by many tribes with diverse culture and languages, although there is a national language spoken throughout the country, namely Bahasa Indonesia. It is thus appropriate, that the country's motto is Bhinneka
Tunggal Ika, which means: Unity in Diversity.
Jakarta, the nation's capital is the main gateway to Indonesia. It is a contrast of modern western architecture and tradition Indonesian culture. Its rapid growth into a metropolitan city reflects the economic, political, social and industrial development of the nation. In Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 4
recent years, Jakarta has expanded its facilities for visitors with multi-star luxury hotels, fine restaurants, exciting nightlife and modern shopping centers as well as tourist attraction such as Beautiful Indonesia in Miniature Park, restored colonial period buildings, marines resorts in the bay of Jakarta, and an extensive beach recreation complex.
Indonesia's climate is definitely tropical. There is no autumn or winter and distinctive "dry" and "wet" seasons share the year. The East Monsoon, from June to September, brings dry weather while the West Monsoon, from December to March is moistureladen, bringing rain. The transitional period between these two seasons is interspersed by the occasional heavy rain shower, but even the midst of the West Monsoon season, temperature range from 21 degrees (70°F) to 33 degrees Celsius (90°F) except at higher altitudes, which can be much cooler. Heaviest rainfalls are usually recorded in December and January and humidity is generally between 75% and 100%
Total Area 1,919,440 sq km Climate tropical; hot, humid; more moderate in highlands Average temperature 21 - 33 oC Mean annual rainfall 700 mm Population 228,437,870 (July 2001 est.) Annual population growth 1.6% (2001 est.) Birth rate 22.26 births/1,000 population (2001 est.) Death rate 6.3 deaths/1,000 population (2001 est.) Life expectancy 68.27 years Major religions 80% Muslim Others: Christian, Hindu, Buddhist Petroleum, tin, natural gas, nickel, timber, bauxite, copper, Natural resources fertile soils, coal, gold, silver GDP Purchasing power parity - $654 billion (2000 est.) GDP-real growth rate 4.8% (2000 est.) Population below poverty line 20% (1998) GDP per capita Purchasing power parity - $2,900 (2000 est.) Unemployment rate 15%-20% (1998 est.) Inflation 9% (2000 est.) Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 5
2 POLITICAL AND SOCIAL ASPECTS
2.1 Political background
Historically Indonesia used to be a colony of the Netherlands, and the status as independent is relatively young. The Indonesian proclaimed their independence right after the World War II, but it wasn’t formally given until December 1949.Althouhgt a constitution was drawn up in 1945. For about fifteen years the country’s history was strongly influent by political instability and economic decline.
In 1966 Sukarno was named president for life, but only a year after Suharto took over the reins of government. Under Suharto the military assumed an overarching role in national affairs, but relations with West were enhanced. Suharto continued his authoritative regime for 32 years.
When Suharto came to power a “New Order” was introduced in the policy. A important part of this new policy was the balanced budget principle which helped to ensure a comparatively high degree of economic stability.
The main political forces has traditionally been the military, the Muslim community and a growing class of well – connected businessmen. The main religion of Indonesia is Islam, but the country is characterized by a great diversity both in respect to religion on ethnic groups.
In fact there are minimum 300 ethnic groups and more than 250 languages are spoken. Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 6
The New Order was expected to bring democracy to the Indonesian life, but it showed out to be a very limited sort of democracy. Islam is a very important element In Indonesian politics, because it has become a political commodity for both those who are within the bureaucratic circle and those outside the ruling elite. It did not take long for Islam to realise that the Suharto government was in favour of economic development rather than democracy. Islam therefore became part of the opposition and very critical of the regime.
There have been many instances in which conflict between Islam and the regime could not be avoided. The sources of the problems were various, ranging from whether or not the government should implement democracy to specific policies that were considered unfavourable to Islam. This relationship between Islam and the state has become much better since 1990, especially since the government recognised the fact that Islam is inevitable in Indonesian politics
During this period after Suharto´s entry several grave conflicts has taken place around the country. The most well – known is the conflict in East Timor which started with the
Indonesian invasion in 1975, and led to 25 years of struggle for independence for the East
Timorese. Other areas of conflicts to mention are Aceh northwest on Sumatra, Molucca
Island, West Kalimantan and Irian Jaya. Thousands of people were killed in the conflicts.
After the Asian crisis in the middle of the nineties, some changes have been forced through in the political system. The military does not have the same power as before, and President
Suharto lost a lot of support because of (among others ) his inability to control the extensive and controversial business activities of his relatives and other associates. Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 7
2.2 Conflicts with roots in ethnicity
The mingling of people has caused a mingling of ethnic groups and of people from different religious backgrounds and socio – economic status, all with their own abstract and real interests. Encounters therefore tend to collide and be highly conflict – loaded.
Strong growth in cities have been a problem to Indonesia, and to manage the migration to
Java and Bali the government has tried to motivate people to live elsewhere. As part of this resettlement program to shift people from overpopulated central islands to the less inhabited portions of the archipelago, the government resettled many inhabitants of the tiny island Madura. The mix of cultures on Borneo was disastrous. The Madurese have been fiercely resented for being successful and aggressive trade people, and they have been attacked at different times in the past by impoverished Dayaks. Most of the Madurese of
Borneo – about 2% of its population – have now fled.
2.3 The Chinese role in Indonesia
In 1998, there were an estimated 8 million ethnic Chinese in Indonesia, including some families that have lived there for centuries. Although they comprise roughly four percent of the population, the Chinese account for staggering 70 percent of Indonesia’s private economic activity. Chinese have periodically been targets of mob violence. Some 100.000
Chinese were expelled from the country in 1959, while thousands of Chinese were attacked and many killed during the 1965 – 1966 bloodbath that followed the fall of president
Sukarno. Many Chinese were accused of being Communists and with maintaining secret ties to the mainland. Anti- Chinese rioting also occurred in 1973 and 1980. Under Suharto,
Chinese were also forbidden from careers in state – sponsored academia, serving military, and the civil service. They were forced to carry identity cards and the use of Chinese characters and celebrations, such as the Chinese New Year, were banned. During the Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 8
violent upheavals that led to Suharto’s downfall in May 1998, some 1200 Chinese believed killed. Thousands of businesses were looted, prompting tens of thousands of Chinese fled overseas. In addition, billions of dollars was transferred out of the country.
2.4 Political activities
The space for political opposition to manoeuvre has been very small in Indonesia because the government has applied various efforts to ensure the stability of order of the country. In an attempt to control all political activities, the government has attempted to use certain political instruments that were used under the colonial government as well as under the
Old Order regime. One of the points in this respect is that the New Order government required all gatherings of more than five persons to have a permit in accordance with
Indonesian law. There are many instances in which the police have broken up gatherings such as seminars and discussions conducted by non – government organisations, students, intellectuals and even political parties in a number of cities, such as Jakarta, Yogyakarta, and Surabaya. Permits in Indonesian politics are among the most significant and effective instruments used by the government in controlling political activities critical of the regime.
The economic and political crisis during the end of the nineties has had a dramatic and contradictory effect upon workers' organisations in Indonesia. Students led the 1998 wave of protest, but it quickly extended to the urban poor. Workers felt encouraged to join the democracy protests and raised demands of their own. Sensing the potential strength of a worker-based opposition, the dying Suharto regime cracked down hard in response.
The students, and not the workers have had the main role in the demonstrations against the labour conditions in Indonesia. Two of the reasons of that might be that most of the labour forces are still waiting. They have been forced to seek work wherever its possible, in small Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 9
family businesses or as itinerant, casual labourers. They are suffering, but finding the next meal is paramount. They are dispersed and unable to organise. Second, effective labour opposition, which might have been expected to take a lead, has been decimated over the past years. There was an attack on the leadership of the independent union SBSI in the wake of the 1994 Medan riots, and then action against the PRD (another independent union
) after the July 1996 demonstrations. Despite outwardly pro – worker and large minimum wage increases, the government has maintained tight control over worker organisations.
Indonesia's new labour movement is small but growing and the mood of workers is hardening. Trade unions are unlikely to occupy centre stage in the political process unless the economy turns around and the bargaining position of their members improves, but they will be an increasingly important player in the looming confrontations over economic reform.
SPSI, the official pro – government labour union, has little following among the mass of wage workers. SPSI is more likely to act as an agent of control rather than reform if the political struggle intensifies.
International organisations represented in Indonesia does not always improve the situation.
Peter Hancock, who works with development studies at Deakin University in Melbourne, made an research in 1997 among 20 factories and 323 female workers in rural Wets Java. He found that, of all factories studied, the two Nike factories treated their female workers extremely poorly. The women working in Nike factories were overworked, exploited, underpaid and abused by management. In 1999/2000 he did a follow – up study designed to measure the impact of the Asian crisis upon factory women. Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 10
The Asian Crisis affected Indonesia more severely than any other country in the region. The purchasing power of the rupiah declined by over 140%. As a result, between 1997 and 1998
(a) the labour force in manufacturing declined from 4.2 million to 3.5 million; (b) the growth rate of manufacturing declined from 6.42% to minus 12.88%; (c) the number of establishments declined from 22,386 to 20,422. Remaining factories either shed staff, increased quotas or decreased wage costs to cope.
The average monthly wages of factory women had increased from Rp 142,000 a month in
1997 to Rp 340,000 in 1999. But given the high inflation levels this increase barely accommodates the crisis. Eleven percent of the women reported that the crisis had plunged them and their families into serious poverty and their wage increases did not cover basic living expenses. All stated that the Asian Crisis made their lives very difficult and that the biggest impact were the massive price increases of staple goods. (The price of rice in the largest open market near Banjaran increased from Rp 1,008 per kilo in 1996 to Rp 2,320 per kilo in 1998). According to Hancock´s household surveys, the Asian Crisis caused prices of food, cooking oil and transport to increase by 200-300% while factory salaries had only increased by just over 100%.
Government data reveal that 'real' wage costs among large and medium shoe factories decreased from Rp 3.96 billion in 1996 to Rp 3.91 billion in 1998 - a real decline despite massive wage increases. The women coped with this situation by not spending money on luxury goods and services (meat, soap, clothes, entertainment, transport or consumer goods). With the help of their families, they budgeted their wages for basic survival only.
Sixteen percent of the women surveyed also stated that, as a result of the crisis and loss of employment in other sectors, they had become the main breadwinner in the family. Their small factory wages were crucial. Only 3% claimed that their factories had become more Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 11
exploitative in terms of forced overtime, working for illegal pay or in abusing women as a result of attempts to increase productivity levels. However, in focus groups and open interviews this story changed dramatically, especially among women from the two Nike factories. I quickly understood that the women were scared of losing their jobs and had been warned not to discuss their employment with researchers. This was due to the fact that the results of my previous research in 1996, once published, had impacted directly upon factory women and upon one Nike factory, Kukje.
Peter Hancock concluded that the conditions in the Nike factories is the negative result of the combination of international capital, Indonesian capital, a Western corporation and a developing country´s desire to industrialise quickly.
2.5 Inequity and development
Despite of several problems Indonesia has experienced a growth with average more then 6 per cent in the period between 1964 and 1985.
We have compared some numbers from Norway and Indonesia from1998 published in the
Human Development Report 2000. The report shows that the life expectancy at birth in
Indonesia in 1998 was 65.6 years compared to Norway´s 78.3, and the adult literacy rate of
Indonesia for age 15 and above was 85.7 per cent. The same number for Norway is 99.0 per cent.
Also the GDP per capita (1995 US$) is an increasing number during the period 1975 – 1998, but compared to our standard there is a wide gap; in 1998 GDP per capita (PPP US$)in
Indonesia is like 2,651 and 26,342 in Norway Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 12
From nearly a bottom place on the World Banks listing of low- income countries in the beginning of this period, the country has climbed on the list and in the end of the period it was a booming, middle – income country. People living in poverty has declined from over
70 to well under 20%.From a tiny inefficient manufacturing industry, Indonesia now has a large diversified and increasingly export – oriented manufacturing sector. But while the cities experience a great deal of industrialisation and modernisation, the rural areas are left behind.
In recent times, the government and also other investors have been aware of the necessity of investment in these regions to make further development possible. Most of the activities in this areas are traditionally farming and fisheries, but since the production methods are antiquated, the earth is poor, and economic resources are scarce many of the inhabitants seek other ways of survive which means they often move to the cities. As a consequence the towns are flooded with job – seekers while villages have become empty in part because there are no work opportunities and in part because many young people do not want to work as farmers anymore.
A long-time plan for the years 1994 – 2019 was announced under the slogan “going global, going industrial an going east”. The latter refers to the great diversity among regions in
Indonesia where especially the eastern region has been left behind. The term “Eastern
Indonesia” refers to nine provinces lying east of Bali; West Nusa Tenggara, East Timor,
Sulawesi divided in three provinces, Maluku and Irian Jaya. Some aspects of life within the region exhibit great variety in ecology, colonial experience, dominant religious affiliation, educational levels, experience since independence, infrastructure, economic development and potentials for development. Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 13
Through their Development Programme, the United Nations publishes an annual report on human development where they focus on human development in general through several indices measured for all countries. One of the indices is the human development index. The
HDI measures average achievements in basic human development through longevity, knowledge and decent standard of living. Taken in account is the life expectancy at birth, adult literacy rate and combined enrolment ratio and a adjusted per capita income in PPP
US$. The UN also observes the development through other indicators as the human poverty index, progress in survival, health profile, education profile, working hours and macroeconomic structure.
A look at the United Nations Human Development index for the last 25 years shows that there has been some progress, but we must beware of the inequity are hidden behind the numbers.
1975 1980 1985 1990 1998 0,465 0,526 0,578 0,619 0,670
There is still a long way to go to lift the Indonesian people out of the poverty, and some numbers from the Human Development Report from 2000 can illustrate that.
The numbers listed below shows the situation in Indonesia in 1998
The aspects taken in consideration in the HPI are;
- People not expected to survive to age 40+ 12,3% Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 14
- People without access to:
safe water 26%
health services 57%
sanitation 47%
underweight children under age 5 34%
Share of income or consumption: poorest 20% = 8% richest 20% = 44,9% richest 20% to poorest 20% = 5,6%
Population below income poverty line
( 1$ a day 1993 PPP US$) 26,3%
National poverty line 15,1%
The poor ones living in towns are at a particular disadvantage. They are subject to the conventional diseases of poverty like infectious diseases and malnutrition, but they are also victims of the negative side effects of modern life styles, overcrowding and industrialisation associated with urban areas and urban growth. They live with urban land, water and air pollution and new risks such as death in traffic accidents and the erosion of traditional systems of social solidarity. As said by WHO in 1991:” the urban poor get the worst of both worlds”. Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 15
3 TOURISM
3.1 History
Tourism emerged as a global phenomenon in the 1960s. In those early years, the potential for tourism to generate economic development was largely accepted as axiomatic. National
Governments looked to tourism as a generator of income, as a means of earning foreign exchange, as a source of employment, and as a means of bringing wider economic benefits to regions with otherwise limited economic potential. Consequently, world tourism expanded largely unrestrained during the 1960s and 1970s. National tourism authorities were established to promote tourism and to ensure that the flow of economic benefits from tourism was maximized.
As world tourism continued to expand, however, a disturbing array of social and environmental impacts began to present themselves. These impacts included the modification of indigenous cultures, increases in prostitution and crime, the pollution of sensitive natural areas, and the excessive use of energy and water resources. By the early
1990s, national tourism authorities had generally come to realize that the economic benefits of tourism would not be achievable in the long run unless tourism was properly planned and managed to include an explicit concern for the social and environmental assets upon which its future prosperity depended. The established policy objective of tourism—to stimulate economic development —was therefore widened to include the condition that any such development must also be sustainable in social and environmental terms. In other words, tourism’s role in economic development is important but it cannot be considered in a vacuum. The social and environmental implications of tourism development must be integrated into development policy. Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 16
Tourism was supposed to be a "smokeless" industry. It was this belief that underpinned its growth after World War II, when the World Bank, abetted by a new U.N. agency, the World
Tourism Organization, prescribed it for Third World countries whose main marketable asset appeared to be "unspoiled" cultures and environments. Tourism, it was argued, would be a passport to development - a clean, green industry with lots of jobs and no factories or fumes.
Worldwide, tourism is a low-wage industry. For poor people, low wages may be better than no wages at all, but it's a moot point. It depends, for example, on what alternatives they have, and sometimes people have no alternative because the government, in pursuit of a national tourism strategy, has moved them off their land or destroyed it to make way for beach resorts or holiday complexes or even golf courses. This, of course, is one of the grand themes of postwar global economic development, and tourism is a culprit only because it is one of the main engines of development.
One way of measuring the importance of tourism in economic development is to examine the share of tourism in national income, employment, export earnings and tax revenues. On this basis, few other traded activities could claim to rival the economic significance of world tourism. Tourism currently contributes about 1.5 per cent of world gross national product
(GNP), a little over 8 per cent of world merchandise exports by value and almost 35 per cent of the value of world exports of services. Tourism is also a significant employer, the hotel accommodation sector alone employing about 11.3 million people worldwide.
Meanwhile the rate of growth in world tourism remains vibrant, with international tourism receipts having increased at a faster pace than world GNP, world merchandise export trade and world trade in services over the period 1985–1995. Forecasts suggest that the growth of world tourism will continue to outpace global economic growth to the year 2020. Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 17
3.2 Contributing to sustainable development
The 1992 United Nations Conference on Environment and Development (UNCED), the Rio
Earth Summit, identified Travel & Tourism as one of the key sectors of the economy which could make a positive contribution to achieving sustainable development. The Earth
Summit lead to the adoption of Agenda 21, a comprehensive program of action adopted by
182 governments to provide a global blueprint for achieving sustainable development.
Travel & Tourism is the first industry sector to have launched an industry-specific action plan based on Agenda 21. More recently, the Economic and Social Council in its resolution
1998/40 of 30 July 1998, recommended that the General Assembly declare 2002 as the
International Year of Ecotourism. It requested a report containing the programmes and activities undertaken by Governments and interested organizations during the year, an assessment of the results achieved in encouraging ecotourism in developing countries and recommendations to promote ecotourism within the framework of sustainable development.
Tourism has important social impacts on countries. Its positive impacts upon the social development and modernization of host societies arise from its contributions, inter alia, to employment creation, worker training and the development of small and medium-sized enterprises (SMEs). Moreover, the increasing participation of local communities in tourism development has encouraged modern structures of public administration as well as the sharing of joint responsibilities between public institutions and the private sector. However, there are a number of negative social impacts that can accompany tourism development both in the developed and in the developing world. As a result, the social policy challenges for national Governments are to address a wide range of concerns, such as those related to safeguarding local cultures; encouraging community participation in tourism; seeking more equitable distribution of tourism benefits; preventing exploitation of women and children in tourism; and improving conditions of employment. Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 18
The rapid development of tourism will inevitably cause changes in the host communities and economies, especially where the numbers of tourist arrivals have increased strongly, for example, in Bali and Indonesia.
3.3 Tourism in Indonesia
Tourism in Indonesia has long been identified as an important engine of development to generate both employment and foreign exchange within the country. In the recent decades, systematic planning and development efforts by the government in cooperation with a growing private tourism industry combined with significant international investment in the hotel sector has resulted in impressive growth in tourism in Indonesia.
3.4 Visitors and numbers
Data from the Central Statistic Bureau (BPS) in Indonesia shows that from 1996-1999, foreign exchange from tourism was the second biggest sector after the gas and oil sector.
For 1997, for instance, although by the last quarter the economic storms that were to shake
South East Asia had already started, there were still 5.1 million visitors to Indonesia who generated some US$ 6.7 billion dollars in revenue. In 2000 travel and tourism exports were estimated to be more than 14% of all Indonesia exports, making it the third most important non-oil sector after timber-based products and textiles. Annual increases in the number of visitors had been in double digit figures throughout the 1990s and by 1997 travel and tourism was estimated to have generate 6.6 million jobs in Indonesia or about 8% of the
Indonesia workforce. Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 19
These are significant numbers when one considers that Indonesia is an archipelago far from the major tourism generating markets of North America, Europe and North Asia; that
Indonesia has no land borders with any other country which would follow easy access by surface transport such as found among European countries or our neighbours in South East
Asia; and that virtually all visitors (except those linked by ferry in the Batam-Singapore corridor) arrive in Indonesia by air. Visitor arrivals in 1999 through all gateways totaled
4,727,520; a mere 2.63 % growth over 4,606,416 in 1998 and revenue earned was US$
4,710,220 millions, an 8,75% growth. The BPS reported a slight increase of 6.8% in international arrivals in 2000, which was around 5.05 million.
This has been the lowest growth of visitor arrivals in the past 10 years which had been experiencing double digit growth. The numbers of international arrivals for 2001 has not been revealed yet, but Indonesia was targeting 5.4 million international arrivals or a growth of 5.8% from the year 2000. The length of stay was targeted at 10 days.
Of course, this impressive performance in the tourism sector has been severely affected by the economic crisis in the Asia Pacific region as have all other export sectors. But tourism is particularly susceptible to image concerns as it is the only export industry where the consumer must come to the destination itself in order to consume the product. Indonesia, in common with their ASEAN neighbours has been severely hit by the economic crisis.
However, in addition, it has suffered from the lingering effects of adverse publicity stemming from the haze from the forest fires a couple of years ago, and the recent years of uncertainties due to the social and political changes taking place within Indonesia. Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 20
3.5 New regulations
In the past few decades, the national air transport policy in Indonesia had to some extent limited the potential growth of tourism by its controls on market entry, price and capacity, and by protecting airlines from market mechanisms. This no longer works effectively.
Changes are taking place in the aviation policy environment, with the advent of "open skies" air services arrangements, and comprehensive free trade agreements that have potentially significant implications for Indonesia's air transport policy.
The national air transport policy is moving towards more liberal and flexible air services arrangements providing for freer access for international airlines and thereby for increased competition among them. This continuing effort has been made on a progressive basis, in a way that also ensures competitive opportunity for national carriers. Code-sharing arrangements and more comprehensive alliances with other carriers, both international and domestic, have in turn impacted on the nature and extent of airline operations, as airlines pursue strategies to improve competitiveness and profitability.
One significant effort towards the liberalisation has been the designation of 23 international airports throughout Indonesia, 16 of which have already served foreign airlines have been allowed to operate direct flights to regional tourism destinations in Indonesia. Last year the department of culture and tourism made some important decisions regarding the entry of tourist to Indonesia, two milestones that was reached after being shelved for years.
The government simplified the requirements necessary for issuance of visas for nationals of the people’s Republic of China such as by abolishing clearing house to handle tourist from
China to Indonesia.
Another milestone was the regulation on long-term visas for retirees passed by the Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 21
immigrations. Retired persons over the age of 55 years will now be able to obtain visas for a year and extended annually, till after 5 years when they will be legible for permanent residency in Indonesia.
3.6 Indonesia Tourism recovers from crisis
Indonesia tourism is recovering from the past 4 years of continuing economic and political crisis and they are optimistic that in 2002 they will see significant growth.
Minister of Culture and Tourism I Gede Ardika stated that in the years 2000/2001 Indonesia was caught between perception and reality. "We romped with the negative image. Foreign countries doubted our security. That was the perception."
Indonesia went through a rehabilitation stage in its tourism development in 2001. The strategy of tourism development in 2001 was to accelerate the economic recovery and to strengthen the platform of the sustainable development included in marketing, product development, research, human resources development, preservation and development of cultural values. The tourism budget for 2001 was Rp. 150 billion.
A wide range micro, small and medium-scale enterprises (SMEs) are needed to supply goods and services to the tourism industry to ensure that each tourism dollar ripples through the local economy in a multiplier effect and simultaneously gives the maximum social and economic benefits to local communities.
For tourism development in developing countries especially has to be viewed as an inter- sectoral activity, and therefore the high amount of inter-dependency among sectors within the economy has to be understood. In order for tourism to generate positive impacts-- Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 22
especially economic impacts in the form of income, employment, government revenue, output, and to reduce imports--it is essential that a certain degree of inter-sectoral linkages exist within the host country.
In developing countries, where regional levels of development vary and they are even typically characterised by disparity and imbalances, the role of tourism become even more essential. Due to these realities, tourism cannot be approached only in terms of master planning and marketing, it is fundamentally the problem of development.
This is especially true when the implications of the “Asian crisis” started to be felt and affectecd travel and tourism activities through the problems of overvalued exchange rates and inflation in countries in the region. When these countries turned to the IMF for short- term assistance (or the World Bank for the medium term), structural adjustment is usually a prerequisite for the assistance to flow.
Within the tourism context, the concept of interdependencies and imbalances reflects the reality of tourism as one of the most intersectoral and cross-cultural activities in the world.
This understanding is essential in order to be able to situate tourism in the increasing globlisation of various kinds of international industries and relationship.
This globalisation encompasses a wide range of factors affecting socio-cultural issues, the economy, ecology, and increasingly global flows of information, ideas, images, money, industry and especially people's interaction. With these factors and concerns affecting the international tourism industry, the more complex tourism becomes.
As part of the structural adjustment, the Indonesian government has given programs that encourages the micro SMEs in the tourism sector in the regions top priority. These Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 23
enterprises have the power to raise living standards and generate employment among the people most hard hit by the economic crisis in local communities throughout the country.
The important role of these SMEs becomes evident when one considers economic benefits.
For example, even when air access to a destination is good, if the host community doesn't supply the range of supporting services and facilities demanded by tourism, then the local and national economy does not benefit as much as it should.
Therefore, among other measures to assist SMEs, the government in cooperation with the hospitality industry has promoted the concept of a “bapak angkat” or “foster parent” program. In this program, large hotel chains are encouraged to buy from local enterprises, train local people, promote local villages for visitors, and feature souvenirs and domestic artists in their lobbies and art shops.
3.7 Summary
Indonesia is making serious efforts to face these very challenging problems brought on by the economic crisis. It recognizes the need to ensure more benefits reach the regions and local communities from tourism while at the same time continue to work at national and international levels in harmony with their neighbours to bring back visitors to the region.
The “rescue program” is intended to be pro-active and to work in many areas of public and private policy to make the structural adjustments needed to respond to immediate needs and concerns but at the same time to build the foundation for long-term, sustainable growth.
Various events held by provincial offices indicate a real effort of the local government and its people in developing and promoting its potential tourism. From tourism’s point of view, this presents a preservation attempt to carefully conserve these distinct cultures with its 300 Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 24
different ethnic and 583 various local languages. There are still many potential opportunities to explore, develop and preserve culture tourism as the frontier of Indonesia
Tourism industry.
Hopefully the market will gain confidence that there is stability in the country and that the major tourist destinations are safe. A broad range of product diversity, including culture, nature and adventure is offered by every major destination in Indonesia. Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 25
4 MACROECONOMIC ISSUES
4.1 Background
We would like to concentrate about macroeconomic issues in Indonesia in the period before and after the Asian Financial Crisis. What happened in this country, also happened to other neighbouring countries as I will explain more about later. This episod shows how globalisation and integration can contribute both positiv as well as negative to the global welfare.
Indonesia stood – together with Malaysia, Phillipines, Singapore, Thailand and Vietnam –at the centre of the most dynamic economic region of the world, and their performance was a part of the Asian "miracle" that has been well studied by economists and policymakers all over the world. Indonesia saw its real per capita incomes rise more than threefold in the period 1970-1996. Together with rapid growth, Indonesia also made substantial progress when it came to poverty reductions. From 1967-1997 its poverty rates fell from 60% of the population to 11%; and standard of living improved. Indonesia was considered a "model" of development success.
There are many reasons why the Asian countries experienced such strong economic fundamentals. Here are some that the IMF (International Monetary Fund) points out:
First, as perhaps the overarching element, financial policies oriented toward
macrostability have helped keep inflation low and external imbalances under
control.
Second, the strategy was market friendly and outward oriented, with liberal
external regimes that maintained generally strong competition positions. Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 26
Third, careful government interventions in a number of areas-such as the
antipoverty programs- unleashed a powerful virtuous circle of government
spending (especially on education and health), productivity and growth that
helped ensure the economic and political sustainability of the reform process in
these countries.
Finally, the willingness of these countries to adjust policies flexibly and quickly in
responses to changing economic circumstances and challenges allowed a rapid
transformation of the economic structure while maintaining intact strong
macroeconomic fundamentals.
4.2 The Asian Crisis 1997
Then the Asian Financial Crisis struck in mid-1997.The crisis in Asia occurred after several decades of outstanding economic performance. Until the crisis, Asia attracted almost half of total capital inflows to developing countries-nearly $100 billions in 1996. So what went wrong?
Some underlying factors:
the failiure to dampen overheating pressures which were manifested in large
external deficits and property and stock market bubbles
the maintenance of pegged exchange rate regimes for too long
lax prudential rules and financial oversight, which led to a sharp deterioration in the
quality of banks' loan portfolios
As the crises unfolded, political uncertainties and doubts about the authorities' commitment and ability to implement the necessary adjustment and reforms exacerbated pressures on currencies and stock markets. Reluctance to tighten monetary conditions and Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 27
to close insolvent financial institutions has clearly added to the turbulence in financial markets.
The crisis started in Thailand in the summer of 1996.In many aspects, Thailand, Indonesia and Korea did face similar problems. They all suffered a loss of confidence, and their currencies were deeply depreciated. Moreover, in each country, weak financial systems, excessive unhedged foreign borrowing by the domestic private sector, and a lack of transparency about the ties between government, business, and banks did both contribute to the crisis and complicated efforts to defuse it.
4.3 Change
Now Indonesia is slowly emerging from the political and economic crisis, and has embarked on a democratic transition with a new President committed to fighting corruption and building a competitive and just economy. But the country did not manage this on its own.
On January 15th 1998, IMF and the government of Indonesia agreed on a reinforced economic program for Indonesia. The program influenced many aspects of the Indonesian economy:
Broad Macroeconomic Framework. The program is designed to avoid a decline in output.
Budget. The 1998/99 budget was revised to accord with the newly agreed macroeconomic framework.
Fiscal Transparency. In order to ensure that the public was kept fully informed of all government activities, the accounts of the Reforestation and Investment Funds should be brought into the budget in 1998/99. Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 28
Public Sector Projects. Under the current economic conditions, public spending should be limited only to those items that were of vital importance to the country.
Monetary Policy. Monetary policy would need to be kept firm for a sustained period, until confidence in the currency is restored. Bank Indonesia was given full autonomy to conduct monetary policy.
Bank and Corporate Sector Restructuring. It was vitally important to restore the banking system to financial health and to alleviate the difficulties of the corporate sector.
IMF Managing Director Michel Camdessus said about the program: "The measure in this program aim to restore confidence in the currency and in the economy by demonstrating that the government recognizes the problems confronting the country and is prepared to do what it takes to overcome them, even if it would be difficult and painful."
The Executive Board of the International Monetary Fund (IMF) completed March 27th 2002 its fourth review of Indonesia's performance under a three-year, SDR 3.638 billion (about
US$4.5 billion) Extended Fund Facility. The IMF is pleased with the development and the goals for future macroeconomic framework continue the optimistic trend.
4.4 Critical view on IMF
Many people have asked critical questions about the work of the IMF. The critics are in the opinion that IMF chose the wrong strategy when it came to helping countries out of the
Asian Financial Crisis. The East Asian nations already had tight monetary policies, as well: inflation rate was low and falling(7.9 % in Indonesia 1996). But IMF wanted to use the same program in East Asia as they did so successfully in Latin America. They didn’t bother listening to arguments, for instance, how high interes rates might increase bankruptcies, thus making it even harder to restore confidence in East Asian economies. Joseph Stiglitz is a professor of economics at Stanford University. From 1997 to 2000, he was a chief Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 29
economist and vice president of the World Bank. He is one of the persons arguing against
IMF. He accuse the Fund for being an undemocratic organisation where everything is going on behind closed doors and it is impossible to know who to trust and who to blame. Stiglitz said: “When the IMF decides to assist a country, it dispatches a “mission” of economists.
These economists frequently lack extensive experience in the country; they are more likely to have firsthand knowledge of its five star hotels than of the villages that dot its countryside.”. Another issue is what caused the crisis. Some argue that East Asian countries had liberalised their financial and capital markets, not because they needed to attract more funds, but because of international pressure, including some of the US
Treasury Department. Open discussion would have raised profound questions that still receive very little attention in the press: To what extent did the IMF and the international pressure push policies that actually contributed to the increased global economic volatility?
4.5 Challenges
If, as it seems likely, globalisation will be associated with increased volatility of capital flows, the frequency of financial crisis will increase and these will have immediate and potentially very large impacts on poverty. Indonesia had reduced its poverty rates from
60% to 11% between 1967 and 1997, yet half of the gains were lost in one year, and by the end of 1998 poverty was at least as high as in the late 80s.
While Indonesia's gains in achieving political transition, economic stablilisation and signs of recovery are encouringing, the remaining challenges are formidable. The crisis has revealed deep structural faults in the economy. The government has accumulated record levels of debt. These are the problems Indonesia would have to deal with in the future. Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 30
5 TRADE, LIBERALISATION AND POVERTY
5.1 Introduction
Has the process of trade liberalisation caused poverty or has it contributed to its alleviation? The effects of trade liberalisation have varied greatly among countries. The net benefits of globalisation are not shared equally amongst countries nor amongst the population, and globalisation can increase inequities to the extent that certain groups, sectors or regions, are able to participate and grow much faster than other groups, sectors or regions within a country.
Trade can have powerful effects on the environment and development. The International
Institute of Sustainable Development (IISD) belives that trade policies and practices can and Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 31
should support sustainable development, and this is a crucial linkage since international trade is an increasingly important engine of economic growth. Incorporating a sustainable development perspective permits the joint consideration of environment, economy and human well being in trade matters. Sustainable development is "development that meets the needs of the present without compromising the ability of future generations to meet their own needs". Sustainable development cannot be achieved worldwide while massive povery persits. Poverty alleviation is a central objective of development, and a key concern for environmental policies. Wealth created by trade is an essential means to achieving this end. In the developing world, combating poverty and achieving sustainability depens on the growth of per capita income, on its distribution, on appropriate domestic policies, and on international policies to support them. Barriers to trade can create impediments to the achievement of sustainable development, particularly for developing countries, and trade liberalisation is an important component of progress towards sustainable development for all countries.
In this section we will analyse how globalisation and trade liberalisation have impacted on growth, development, inequality and poverty alleviation in Indonesia. Indonesia has experienced rapid growth due to rapid liberalisation and globalisation in the 1980s and
1990s, including the economic boom in the 1990s. The experience of Indonesia and the rest of Southeast Asia, in comparison to Latin America, has been touted as a good example, whereby rapid economic development has been accompanied by improvements in income inequality and reduction of absolute poverty. However, since the mid 1980s and more recently there is preliminary evidence that these trends are starting to reverse themselves, and this occurred prior to the onset of the recent financial crisis. Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 32
5.2 First Phase of Development and Liberalisation (1970 - mid 1980s)
Indonesia, along with Thailand and Malaysia, were all primary commodity exporters and agrarian based economies in the 1960s and into the 1970s. All followed similar industrialisation strategy of import substitution, followed by a subsequent switch to export orientation. The focus is mainly on the unskilled labor intensive exports which tends to be
“pro poor” by absorbing large numbers for employment and with lower education requirement (i.e. primary school level). The export oriented strategy in manufacturing was often carried out along side continued import substitution in selected areas and industries.
Up to the early 1980s, Indonesia followed an inward looking import substitution industrialisation approach, with the government playing a central role either through state owned enterprises in heavy industries such as oil refining, cement, aircraft, steel and fertilisers, or through regulations.
5.2.1 Impact on poverty, inequality and growth
Indonesia had high levels of poverty incidence and inequality at the beginning of its industrialisation process in the early 1970s. During the 1970s and into the 1980s, the economiy experienced relatively high average growth rates at above five percent consistently. The initial impact on poverty was dramatic, with a rapid decline in poverty in the first half of 1970s. From mid 1970 until mid 1980s Indonesia continued to experience decline in poverty levels, and the Gini coefficient declined consistently throughout the period. Poverty alleviation can be achieved by economic growth which changes the overall level of income or by improving income distribution which changes the dispersion of distribution. The fall in poverty rates in Indonesia for much of this period has been mainly due to growth rather than changes in inequality, but reduction in inequality also assisted poverty incidence in Indonesia in the later period of 1978-84 (Pengestu, 2000).
5.2.2 Rural-urban dimensions
In terms of numbers, the poor remain predominantly in rural areas, accounting for 60-70 Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 33
percent of the poor in the Southeast Asian countries. However, the number of urban poor has risen due to rural-urban migration. In Indonesia the incidence of rural poverty was only slightly higher than urban poverty. During the 1970s or the main years that Indonesia experienced the oil boom, the decline in poverty was much more rapid in urban areas than in rural areas, reflecting the urban concentration of construction and import substitution
(IS) industrialisation activities. However, during the late 1970s, the trend changed with poverty in rural areas falling more rapidly than urban areas so that by 1980 rural poverty incidence was in fact slightly lower than urban poverty incidence and by 1987 much lower. The reason for this trend in Indonesia is most likely due to the government prioritising spending of oil revenues on the development of rural infrastructure and the rice self-sufficiency policy, which boosted the agriculture sector. However, urban inequality remained higher by mid 1980s. The higher urban inequity is most likely due to the fact that the rise in wages in the modern formal sector was much more rapid than that of the informal sector, and that the benefits of growth was concentrated within certain groups. People in the urban areas and oil related sectors benefited more than people in rural areas.
5.2.3 Regional Dimensions
As can be expected there are regional differences in poverty incidence and inequality within the country. Regional comparisons for Indonesia show that urban inequality was worse in urban areas in Java compared to off Java. (Booth, 2000).
5.3 Second phase: Rapid Liberalisation and Opening Up (mid 1980s – 1997)
The period of rapid globalisation is characterised by the period from mid 1980s to 1990s whereby all the Southeast Asian economies pursued a more aggressive and consistent export oriented strategy and were already or shifting away from labor intensive exports to Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 34
more skilled labor and human capital intensive exports. At the same time these economies had liberalised the financial sector and/or the capital account, and attracted large capital inflows. The composition of exports changed dramatically. As for Indonesia, the share of non oil exports out of total exports increased from 30 percent to 60 percent by 1998. Exports of manufactured products were initially in labor intensive products (e.g. garments and footwear) and resource intensive sectors (e.g. wood and paper), but just prior to the crisis a discernible shift to technology and human capital intensive exports (e.g. electronics) was beginning.
The export structure had became less diversified and more interdependent, and as such exposed the Southeast Asian countries to greater risks of adverse developments of terms of trade decline and excess capacity as occurred in 1996, and contagion. The improved investment climate and the opening up of financial sector, led to unprecedented amounts of capital inflows into these countries. Net private capital inflows into Indonesia increased more than 10 fold in the 1990s from less than $1 billion in 1989 to close to $11.5 billion in
1995. FDI growth, especially in export oriented investments, were dramatic. (World Bank numbers)
5.3.1 Impact on poverty, inequality and growth
Absolute poverty continued to decline in Indonesia. By 1996, one year before the crisis, poverty incidence just slightly above 10 percent. The dramatic decline in national poverty numbers masks some important problems. In Indonesia the problem of the near poor is not a trivial one, since increasing the poverty line by 25 percent led to a more than doubling of the percentage of the population below the poverty line from 11 percent to 25 percent in
1996. Moreover remote regions and rural areas outside of Java were in a poverty trap and still experienced high levels of absolute poverty. Indonesia experienced an increase in inequality over the 1990s. Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 35
5.3.2 Rural-Urban Dimensions
The growth in real wages of women has been impressive with average real wages in all sectors rising faster than men during the boom years. As for differences in urban-rural poverty, there were important reversals in the tendencies of earlier periods. Since the mid
1980s growth of employment in urban areas has been much higher at close to 11 percent compared to only half percent in the rural areas during the 1986-97 period. Similarly growth in the formal sector was much higher than in the informal sector. Poverty in urban areas declined much faster than rural areas, which indicates that urban areas probably benefited more from the boom during these years of rapid globalisation. The greater concentration of growth in urban areas and non traded sectors, and the switch from unskilled labor intensive to more skill and capital intensive exports, led to widening disparaties. Both urban and rural inequality measures rose during this period leading to a rise in the total Gini coefficient right up to 1997, just prior to the crisis. There was also a wide variation across regions of poverty incidence with extreme variations. For instance in
1990 poverty incidence was 13 percent in Jakarta and 46 percent in East Nusa Tenggara
(World Bank, 2000).
5.4 The 1997 Economic Crisis
The impact on the poor due to the financial and economic crisis which began in 1997 and which led to economic contraction in 1998 for all the Southeast Asian economies, was compounded by the drought in 1997. The weather effects of El Niño caused a drought in
1997 and heavy rains in 1998. The drought caused crop failures as well as forest fires in
Indonesia. The economic crisis was also worsened by a political crisis. This hightened existing social tensions, caused partially by the observed disparities and inequalities of income and wealth. The overall impact of the economic crisis worsened poverty and inequality and reversed the previous dramatic trend of declining poverty. The population Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 36
living below poverty line increased from 11 to 20 percent over the 1996-98 period in
Indonesia, or around 20 million people, and then declined slightly to 19 percent by 1999
(Feridhanusetyawan, 2000). This sets Indonesia back to the poverty situation of 1990. The effect of the crisis on labor in Indonesia, has been mostly through falling real wages and underemployment, rather than open unemployment. (World Bank, 1998) The younger, less skilled (lower education), and workers in the informal sector were the most affected. Real wages in Indonesia for the formal sector fell by 34 percent and in the agriculture sector by
40 percent. There was also a shift of employment from formal to informal sector, and from modern to agriculture sector, which put a downward pressure on wages. The crisis hit urban areas in Jakarta and West Java most. The lack of special social programs for workers and the poor adversely affected by economic shocks and risks, was certainly felt during the recent economic crisis.
6 CONCLUSION
All the studies that look at the effect of globalization or opening up the economy to goods, services and investment, on poverty and income distribution conclude that it is difficult to isolate globalization as having the positive effect on growth, inequality and poverty. The outcome depends on a number of related factors such as the country’s endowment (for instance oil resources), initial conditions, its geographic location and the complementary policies that accompanied the process of opening up. Certain groups lose in the short run, and therefore the key issue here is the kind of effective safety net programs which can be introduced to ease the transition in the short run for those groups that lose. It is the combination of policies that matter for growth and the type of growth which leads to better social outcomes. Countries should not pursue openness for the sake of liberalisation and openness, it should be part of their development strategy. Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 37
The experience of Indonesia and other Southeast Asian countries provides an example of where growth resulted from more open policies and was accompanied by reductions in poverty. However, the record is mixed with regard to improvements in equity and disparities between regions, urbanrural, ethnic groups remain and in some cases worsened as a result of the growth pattern. Inequity improved in Malaysia and Indonesia, and deteriorated in the case of Thailand during the period of rapid growth based largely on IS strategy. The main reason for Indonesia’s relative success in reducing inequity, has been a set of complementary policies that goes beyond simple trade liberalisation and incorporated agriculture and rural development policies. The impact of growth on income distribution and poverty depends on the package of policies used to achieve growth.
The challenges faced by the Southeast Asian economies are great. Everyone agrees that the pace of globalisation and increased competition are not going to stop and will probably accelerate due to technological changes and excess global production capacity. Continued growth will depend on maintaining their economies open and participating in the globalisation process, but as the recent crisis demonstrates, to do so in a sustained manner, countries have to learn to manage the risks and down side of increased integration of their economies with the world economy. Volatility of growth will increase with openness to trade and capital flows, and countries cannot avoid fluctuations in growth due to external factors totally. At the same time these countries are facing other domestic challenges in implementing their social policies to minimize the adverse effects of globalisation, such as a growing component of aging population, increased urbanisation of the population, and greater political openness and democracy.
Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 38
Attachement 1 – Overview of Government officials and other important people
The Latest Cabinet President Megawati Soekarnoputri Vice President H. Hamzah Haz COORDINATING MINISTER Political, Social and Security Affairs Susilo B Yudhoyono Economic Affairs Dorodjatun Kuntjoro-jakti People`s Welfares Yusuf Kalla MINISTER Home Affairs Hari Sabarno Foreign Affairs Hasan Wirayudha Defense H Matori Abdul Djalil Finance Dr Boediono Religious Affairs Said Agil Munawar Forestry M Prakosa National Education Abdul Malik Fadjar Health and Social Welfare Ahmad Sujudi Transportations Agum Gumelar Manpower and Transmigration Jacob Nuwawea Agriculture Bungaran Saragih Industry and Trade Rini MS Suwandi Energy and Mine Resources Purnomo Yusgiantoro Justice and Human Rights Affairs Yusril Ihza Mahendra Resettlement and Regional Infrastructure Soenarno Culture and Tourism I Gde Ardhika Social Affairs Bachtiar Chamsjah Maritime and Fisheries Rochmin Dahuri STATE MINISTER Research and Technology M Hatta Rajasa Cooperatives and Small-Medium Enterprises H Alimarwan Hanan Environment Nabiel Makarim Women`s Empowerment Affairs Hj Sri Redjeki Soemarjoto Administrative Reforms Faisal Tamin Acceleration of Development of Eastern Indonesia Manuel Kaisiepo Head of the National Development Planning Board Kwik Kian Gie Revenues and State Companies Laksamana Sukardi Communication and Information H Syamsul Muarif NON-CABINET HIGH OFFICIALS Attorney General AM Rachman Indonesia Military (TNI) Commander Widodo A.S. Chief of National Police (POLRI) S. Bimantoro State Secretary Bambang Kesowo Governor of Bank of Indonesia Syahril Sabirin Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 39
Attachement 2 – World Travel and Tourist Council (WTTC) - TSA ESTIMATES AND FORECASTS:
2001 2011 Indonesia I % of Tot Growth 1 I % of Tot Growth 2
Personal Travel & Tourism 34,364.7 3.4 1.1 133,729.0 3.8 6.3 Business Travel 27,754.3 --- 4.2 95,339.5 --- 5.0 Government Expenditures 9,444.2 8.4 8.0 35,031.6 8.9 5.8 Capital Investment 35,234.5 10.8 18.3 138,616.0 11.1 6.5 Visitor Exports 28,823.8 4.3 -20.2 140,433.0 6.1 8.9 Other Exports 16,644.3 2.5 22.0 77,905.4 3.4 8.6 Travel & Tourism Demand 152,266.0 --- 1.5 621,055.0 --- 6.9 T&T Industry GDP 49,117.0 3.4 -7.0 195,435.0 3.6 6.6 T&T Economy GDP 123,542.0 8.5 -0.9 500,772.0 9.3 6.8 T&T Industry Employment 2,172.4 2.4 -0.1 3,239.8 2.5 4.1 T&T Economy Employment 5,416.5 5.9 -5.3 8,445.2 6.5 4.6 1 2000 Real Growth Adjusted for Inflation (Percent) 2 2001-2011 Annualized Real Growth Adjusted for Inflation (Percent); Employment in Thousands
Total Demand Travel & Tourism is expected to generate IDR 152,266.0 billion (US$ 15.6 billion) of economic activity (Total Demand) in year 2001, growing to IDR 621,055.0 billion (US$ 49.9 billion) by 2011. Travel & Tourism Demand is expected to grow by 6.9% per annum, in real terms, between 2001 and 2011.
Gross Domestic Product - Travel & Tourism Industry The T&T Industry is expected to contribute 3.4% to Gross Domestic Product (GDP) in 2001 (IDR 49,117.0 billion or US$ 5.0 billion), rising to IDR 195,435.0 billion or US$ 15.7 billion (3.6% of total) by 2011.
Gross Domestic Product - Travel & Tourism Economy The T&T Economy contribution should rise from 8.5% (IDR 123,542.0 billion or US$ 12.6 billion) to 9.3% (IDR 500,772.0 or US$ 40.3 billion) in this same period.
Employment In 2001, T&T Economy employment is estimated at 5,416,520 jobs or 5.9% of total employment, which is 1 in every 16.9 jobs. By 2011, this should grow to 8,445,200 jobs, 6.5% of total employment or 1 in every 15.4 jobs. The 2,172,370 T&T Industry jobs account for 2.4% of total employment in 2001 and are forecast to rise to 3,239,760 jobs or 2.5% of the total by 2011.
Exports Travel & Tourism is expected to generate 6.7% of total exports (IDR 45,468.1 billion or US$ 4.7 billion) in 2001, growing to IDR 218,338.4 billion or US$17.6 billion (9.5% of total) in 2011.
Capital Investment Capital investment is estimated at IDR 35,234.5 billion, US$ 3.6 billion or 10.8% of total investment in Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 40
year 2001. By 2011, this should reach IDR 138,616.0 billion, US$ 11.1 billion or 11.1% of total.
Attachement 3 – WTTC Year 2001 TSA Research Tables - Indonesia
1997 1998 1999 2000 2001 2002 E 2011 E Travel & Tourism - US$ Bn Personal Travel & Tourism 5.46 2.81 3.59 3.72 3.52 4.19 10.76 Business Travel & Tourism 3.65 1.92 2.73 2.92 2.84 3.34 7.67 Corporate 3.43 1.81 2.57 2.73 2.65 3.11 7.19 Government 0.22 0.12 0.17 0.18 0.19 0.23 0.48 Gov't Expenditures - 0.42 0.18 0.26 0.28 0.29 0.36 0.86 Individual Visitor Exports 6.64 4.28 4.07 3.33 2.95 3.33 11.29 Travel & Tourism 16.17 9.19 10.65 10.25 9.60 11.23 30.57 Consumption Gov't Expenditures - 0.97 0.40 0.59 0.65 0.67 0.84 1.96 Collective Capital Investment 7.83 2.55 3.03 3.68 3.60 4.35 11.15 Exports (Non-Visitor) 1.68 1.30 1.28 1.59 1.70 1.78 6.27 Travel & Tourism Demand 26.65 13.45 15.55 16.17 15.58 18.20 49.95 Travel & Tourism Industry Aggregates (Direct Impact Only) Employment (000's) 2,277.08 2,199.04 2,183.02 2,181.35 2,172.37 2,215.15 3,239.76 Gross Domestic Product 8.30 4.75 5.67 5.41 5.03 5.86 15.72 Travel & Tourism Economy Aggregates (Direct and Indirect Impacts) Employment (000's) 6,867.10 6,800.60 5,874.66 5,561.27 5,416.52 5,417.94 8,445.20 Gross Domestic Product 22.45 11.13 13.45 13.65 12.64 14.80 40.27
1997 1998 1999 2000 2001 2002 E 2011 E Travel & Tourism Accounts as % of National Accounts Personal Travel & Tourism 4.03 3.94 3.54 3.44 3.35 3.41 3.78 Gov't Expenditures 8.87 8.13 8.30 8.36 8.37 8.48 8.94 Capital Investment 11.34 10.70 10.75 10.80 10.80 10.85 11.14 Exports 13.74 10.46 10.10 7.52 6.74 6.91 9.50 T&T Imports 7.20 5.91 5.96 5.73 5.52 5.56 5.61 Travel & Tourism Industry Aggregates (Direct Impact Only) Employment 2.67 2.51 2.45 2.44 2.37 2.34 2.49 Gross Domestic Product 3.86 4.75 3.98 3.53 3.37 3.25 3.63 Travel & Tourism Economy Aggregates (Direct and Indirect Impacts) Employment 8.04 7.76 6.58 6.21 5.91 5.72 6.49 Gross Domestic Product 10.45 11.12 9.44 8.90 8.47 8.20 9.31 Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 41
1997 1998 1999 2000 2001 2002 E 2011 E Travel & Tourism Real Growth (per annum except 2011 = 10 year annualized) Personal Travel & Tourism - 0.89 -4.82 -9.44 1.09 0.72 4.47 6.35 Business Travel & Tourism 4.90 -2.63 0.85 4.15 3.77 3.03 5.02 Gov't Expenditures -3.08 -22.85 3.26 8.04 9.99 8.93 5.84 Capital Investment 2.61 - 39.78 -15.68 18.32 4.45 5.57 6.45 Visitor Exports 16.88 19.27 -32.61 -20.18 -5.51 -1.11 8.87 Other Exports 1.82 42.91 -30.15 22.02 13.82 -8.33 8.56 Travel & Tourism 7.11 5.12 -17.83 -6.08 -0.18 2.47 6.79 Consumption Travel & Tourism Demand 4.98 -6.74 -17.98 1.52 2.66 2.28 6.85 Travel & Tourism Industry Aggregates (Direct Impact Only) Gross Domestic Product 7.77 5.86 -15.35 -6.95 -0.97 2.20 6.59 Employment -0.99 -3.43 - 0.73 -0.08 -0.41 1.97 4.08 Travel & Tourism Economy Aggregates (Direct and Indirect Impact) Gross Domestic Product 3.85 -8.36 -14.30 -0.93 -1.31 2.57 6.78 Employment 1.64 -0.97 -13.62 -5.33 -2.60 0.03 4.56
1997 1998 1999 2000 2001 2002 E 2011 E Travel & Tourism - 1990 Constant US$ Bn Personal Travel & Tourism 4.32 4.11 3.72 3.76 3.79 3.96 7.00 Business Travel & Tourism 2.88 2.81 2.83 2.95 3.06 3.15 4.99 Gov't Expenditures - 0.33 0.26 0.27 0.29 0.32 0.34 0.56 Individual Visitor Exports 5.24 6.25 4.21 3.36 3.18 3.14 7.35 Travel & Tourism 12.77 13.43 11.03 10.36 10.34 10.60 19.90 Consumption Gov't Expenditures - 0.77 0.59 0.61 0.66 0.73 0.79 1.28 Collective Capital Investment 6.19 3.73 3.14 3.72 3.88 4.10 7.26 Exports (Non-Visitor) 1.32 1.89 1.32 1.61 1.83 1.68 4.08 Travel & Tourism Demand 21.05 19.63 16.11 16.35 16.79 17.17 32.52 Gross Domestic Product Travel & Tourism Industry 6.56 6.94 5.88 5.47 5.41 5.53 10.23 Travel & Tourism Economy 17.74 16.25 13.93 13.80 13.62 13.97 26.22 Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 42
Attachement 4 – Indonesian Economic and Financial Indicators:
Indonesian economic and financial indicators 1996 (in percent of GDP unless otherwise indicated) Growth, investments and saving GDP growth rate 7.8 Investment 32.7 private 27.4 public 5.3 National saving 29.3 private 23.0 public 6.3 Trade orientation Exports of goods and nonfactor services 26.2 Manufactured exports 13.3 Export growth rate (value in US dollars) 10.3 Balance of payments Current account deficit -3.6 Capital inflows (net) 5.2 FDI (in percent of capital inflows) 53.8 Reserves (in months of imports of goods and services) 6.0 Debt External debt (in percent of exports Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 43
of goods and services) 178.5 Short-term debt (in percent of external debt) 8.5 Debt-service ratio (in percent of export of goods and services) 32.8 Financial stability Inflation (percent change) 7.9 Private sector credit (percent change) 22.4 Central government balance 1.0 Public debt 27.7
Table 1. Indonesia: Macroeconomic Framework, 2001–02 (In percent) 2001 2002 Real GDP growth 3-3.5 3-4
Inflation End of period 11-12 9-10 Average 11-12 10-11
Current account balance In billions of U.S. dollars 4.9 1.9 In percent of GDP 3.4 1.0
Gross reserves (in billions of U.S. dollars) 28.7 29.2
Central government balance (in percent of GDP) -3.7 -2.5 Revenues and grants -20.3 -18.0 Expenditures and net lending 24.0 20.5
Base money growth1 15-16 12-14 1Years ended January 2002 and March 2003, respectively. Term Paper GEO 302/424: Some Aspects of Globalisation in Indonesia Page 44
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