Indonesia: Best Practices for Neo-liberalism Agenda

Posted: August 25, 2005 in Celoteh iseng

by Sukma Widyanti and Tunggal Pawestri

“There have been lots of assistance programs, special market operations and rice for the poor,

and I have never gotten anything from them even though I am very poor,”

(nurhuda, Jakarta Post march 2005)


“When my child was treated at a hospital, I had to pay the bill myself,

no assistance whatsoever,”

(The mother of five earns a living selling pempek (fish dumplings).

She is not getting her hopes up about the possibility of the government providing assistance for the poor)

“In order to alleviate poverty and reduce unemployment, we need to achieve quite a high and qualified economic growth. This means that the economic growth that we expect is one that is able to absorb the labor force, reduce poverty, and lessen the socioeconomic gap, while safeguarding the environment. The revitalization of the agriculture, fisheries, and forestry constitute an important part of our economic strategy. The effort to enhance the people’s welfare, aside from carried out by increasing their income, especially those of the poor people, is also achieved by improving the people’s quality of life. This can be reflected through the betterment of their education and health services. Permit me, now, to deliver the main developments of the strategy to improve people’s welfare”.

(State address of the presidency of the Indonesia, statement on the bill on the state budget for the 2006 Fiscal year and its financial note before the plenary session on the House of Representatives on 16th august 2004)


Since Soeharto, Indonesia Government has been a good disciple to all world financial institutions. Actually this is the main character of Indonesia government (from time to time: Soeharto’s Period until SBY’s period) for globalization or trade liberalization issues.

As an example, the government is really abided by foreign investors. As part of the government’s election promise to push growth rate up to 7 percent by 2009, there are ambitious plans for investment in infrastructure. In the next five years, the government is expected to raise between Rp 700 trillion (US$75 billion) and Rp 1,000 trillion (US$110 billion), or about one third of its GDP from local and foreign investors to finance infrastructure projects to build roads, railways, ports, airports, power plants, telecommunication facilities, gas distribution, water plants, irrigation facilities, housing and other crucial infrastructure. To implement this, recently Indonesia Government held an infrastructure summit, and they ensure the investors to put their business in Indonesia. For this purposes, government enactment a law, presidential decree (Perpres 36/2005) about Land Ownership. Protect with the law, government has a right to ‘take’ people’s land in the name of development.

A. Introduction

These are general information about Indonesia:

Population (2005 est.): 241,973,879 (growth rate: 1.5%);

Birth rate: 20.7/1000;

Infant mortality rate: 35.6/1000;

Life expectancy: 69.6;

Economic summary: GDP/PPP (2004 est.): $827.4 billion;

per capita $3,500.

Real growth rate: 4.9%.

Inflation: 6.1%.

Unemployment: 9.2%.

Literacy rate: 89% (2003 est.) with more male can read and write compare with female.


The 2004 World Bank report put the number of Indonesians on the brink of poverty, or people with daily expenditures of approximately $2, at 53.40 percent of the total population. It means that even the small decline of the economic condition could throw almost 128 million people into horrible poverty.

B. General situation on trade in Indonesia

Indonesia has been a member of WTO since 1994, at the Uruguay round in Marakesh Morocco. From the interview with Indonesian Government at that time, there were no specific reasons why Indonesia had to joint WTO. The government just thinks that they would get more chances or opportunity for broader market. It seems that they did not realize if this is a tricky play from developing countries. Agreement in agriculture, market access is one of the component that really a keywords for this issues.

In the meantime, until now developing countries has to face many barriers in trade.

Indonesia Debt compare with GDP


Payment of Debt Interest




































Source: APBN, Finance Minister


The World Bank, IMF and The transnational corporations (TNCs) are the most powerful actors and biggest beneficiaries of neo-liberal globalization. They use their enormous power to intervene in the formulation of national economic, social, and labor policies, by taking advantage of neo-liberal rules such as Labor Market Flexibility (LMF), Free Capital Flow, Minor State intervention in Market, etc. In this global economy context, Indonesia as its part have to be accept on various agreement on trade in WTO forum, and force to be one aspect of the International Division of Labor as periphery state. Under UU no.13/2003 Indonesian labour become more fragile, Trade Union’s power become less and lesser as the informalisation policy increased. As of February 2005, there were 105.8 million workers nationwide, of which around 79 million were working with the country’s 42.3 million SMEs (small and medium enterprises)

Low economic growth and high unemployed worker

In the past 5 years, the Indonesian economic growth is only about 3 to 5 %, this number makes the high number of unemployed worker would be too hard to be overcome. As the result, the formal sectors workers are easily being fired, and recruit young labor force that have low expectancies on job security and wage. A minister says, in particular due to the recent fuel prices hike, may result in up to 1 million workers losing their jobs by the end of the year.

The extra labor force that can not be absorbed by the formal sectors, has joined the informal sectors. For example, In 2003 from 88,1 million Indonesian labor force, 64,4% work in informal sectors, in the village most of the informal workers (80,6%) being absorbed in agriculture sector as peasant. And in the cities, about 41,4% being absorbed in trading sector as street vendors.

Population 15 Years of Age and Over By Main Employment Status

Main Employment Status







Self Employed

17 451 704

17 632 909

16 901 123

18 309 288

17 480 227


Self Employed Assisted by Family Member/Temp. Help

20 329 073

22 019 393

22 323 671

21 512 405

21 239 114


Employer with Permanent Workers

2 788 878

2 786 226

2 672 644

2 965 893

2 908 726



26 579 000

25 049 793

24 149 886

25 459 554

25 741 089


Casual employee in agriculture

3 633 126

4 513 600

4 607 162

4 449 921

4 950 562


Casual employee not in agriculture

2 439 035

3 559 927

3 285 890

3 732 838

4 090 075


Unpaid Worker

17 586 601

16 085 318

18 870 415

17 292 137

18 538 325


90 807 417

91 647 166

92 810 791

93 722 036

94 948 118

Source: National Labor Force Survey 2001, 2002, 2003, 2004 and 2005

On migrant workers, Indonesia has exported around 600,000 workers annually and the number of Indonesian migrant workers has reached 2.4 million, most of them employed as domestic servants. The sector contributes around US$3.5 billion annually in foreign exchange revenue to Indonesia.

In January, 2005, the number of the jobless was more than 11 million, while the number of people working less than 35 hours a week was 43 million, out of a workforce of approximately 100 million.


Since privatization is the backbone or like Charles Santiago told us, the ideology of WTO so the data below will show us:


Revenues and Expenditures of National Budget 2005: 7.038 trillions

Subsidize: 31,3 trillions = 1,4% GDP

Pay Debt Interest: 64,1 trillions = 2,9 % GDP

Health : 8,4 trillions = 0,6% GDP

(Source: Human Development Report 2004, all in rupiah)

The data above shown us that compare with the budget for paying debt interest (2,9% GDP), health sectors only receive 0.6% from GDP.

This health expenditure spent by :

  • private individuals or institution : 80 %
  • the state : 20%

Ideally (Sachs : 2001) minimum expense that the state should cover is US$ 30/person/year. So in Indonesia cases, the budget should be around Rp. 53 trillions

Even, in the last three years, the allocation for the repayment of external and domestic debts is one third of the total National Budget.

The 2005 National Budget also indicate same fact, allocated Rp78 trillion (US$7.9 billion) to pay the principal and interests of foreign debts. This amount is in contrast to the budget for fulfilling basic rights, namely: Rp9.91 trillion (US$ 991 million) for health, Rp30.785 trillion (US$3.08 billion) for education and Rp3.679 trillion (US$367 million) for the agriculture sector.

So, it is very clear that government more pay attention to following the scheme of international financial institution than their people.

Number of health facilities in Indonesia

  • 7100 health centers (puskesmas)
  • 23.000 sub centers
  • 4000 mobile clinics
  • 19.000 village maternity room
  • 240.000 monthly health service posts (posyandu)

Can you imagine that 215 million peoples, who lives in more than 13.000 island in Indonesia only have few facilities for health?

Regional Government Owned Hospital has been Privatize since PP No.40/2001 In Jakarta, this policy become manifest in 2004 through Perda (Regional Regulation) No. 13,14 and 15 in DKI Jakarta. The hospitals are RSUD Cengkareng, RSUD Pasar Rebo, RSUD Haji Pondok Gede. These hospitals used to be the hospital which poor people used to go because of its relatively reachable price. Since this privatization regulation has been imposed, access of the poor people becomes much lesser. For example, the price of the intensive care hospital in class 1 raise 100% from Rp 10.000 (1US$) to Rp. 20.000 (2 US$), the price of Bidan (informal nurse) raise from Rp 7500 (75 cent) to Rp 15.000 (1.5 US$).

Privatization is a mechanism to transfer public goods and resources into the hands of private corporations. The struggle for the utilization of basic resources, public goods, and services in a direction which serves the people’s interests has to be done.


Based on the constitution, government must allocate at least 20 percent of the state budget and regional budgets for education. The percentage is in accordance with the amended 1945 Constitution. Data from the Ministry of Finance shows that the government had for this year only allocated Rp 24.6 trillion (some US$ 2.4 billion) — or 9.29 percent of the government’s total expenditures — for education through the national education and religious affairs ministries, which is a 33 percent increase from its allocation last year.

The privatization in the education sectors also being realized by the government project to ‘privatize’ almost all state university (at the end of 2005, all stated universities will be privatized)

Although Indonesia government have a mechanism to give grant on education under the raised of oil price compensation, in form of School Operation Fund (covers scholarship, books, school maintenance, etc), this mechanism certainly can not fulfill the needs of basic education for Indonesian people and can not free from corruption act.

Well, this is not complete yet. It is only slight information about best practices of neo-liberalism in Indonesia. WTO, IMF, World Bank and any other financial institution finally could not be seen in a separated ways, they are all inter connected.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s