Could the Greek tragedy happen here?

 

Nothing controversial here, though I think some people appropriated the title and quoted this once in a while.

YS

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Could the Greek tragedy happen here ?

Yohanes Sulaiman, Jakarta | Mon, 05/10/2010 1:00 PM

On May 1, 2010, The New York Times published an analysis of a country where "ducking taxes is part of a broader culture of bribery and corruption that is deeply entrenched . and bribing government officials to grease the wheels of bureaucracy is so standard that people know the rates."

Sounds familiar? Unfortunately yes. While the article is discussing the root causes for the economic problems facing Greece, these descriptions can also be applied to Indonesia, where we have a similar or probably even worse culture of bribery and corruption.

The sudden collapse of the Greek economy took everyone by surprise. Greece had experienced healthy economic growth in the 1990s. The economy was doing so well that the country was accepted into the Euro bloc in 2001.

Behind the economic growth, however, corruption remains rampant. In fact, according to Transparency International's 2009 report, Greece is ranked 71 out of 180 countries in term of perceived level of public-sector corruption (while Indonesia is ranked 111).

Corruption had taken a huge chunk of Greece's economic growth. The Brooking Institutes found that corruption cost at least 8 percent of Greece's annual GDP or around US$27 billion annually, leading to a budget deficit. Apparently, without corruption, Greece actually could have enjoyed budget surpluses in the past decade (Wall Street Journal , April 15, 2010).

At this point, Greece is facing a fight for its survival. Investors' confidence is at the all time low, thanks to the Greek government's manipulation of its economic statistics and its reluctance to swallow the bitter pills of economic reforms, the fear that Greece may default on its bonds, and the bitter fact that only reluctantly and slowly both Berlin and Paris are coming to help. Bailing out Greece is simply unpopular in Germany and politically toxic.

To make the situation worse, Greece is a part of the Euro bloc. This means that Greece cannot devalue its currency, making exports cheap, and in turn stimulating its economy.

Instead, Greece can only slash its spending and improve its tax collections. The former is always politically unpopular due to a massive cut in salaries and perks for everyone. Not surprisingly, the announcement led to widespread protests. The latter is very difficult due to a deeply entrenched culture of bribery and corruption.
At the time when the country is in the crisis, the economy is collapsing, and the government is in turmoil, corruption is the only thing that stands between Greece and its survival. Corruption slowly strangles Greece's economic miracle and now prevents Greece's economic rescue. Talk about tragedy.

So, can "the Greek Tragedy" happen in Indonesia? Actually, back in 1997-8 Indonesia once had a brush with the perils currently facing Greece, when the Asian economic crisis shattered investors' confidence toward the economies of the region. Add a dash of political uncertainties thanks to president Soeharto's illness and succession crisis, and you had the perfect storm of both political and economic collapse.

While today's condition is vastly different, thanks to democratization and reformation of Indonesian politics, the fundamentals remain weak as corruption remains entrenched in the bureaucracy.

The main difference between today's Indonesia and Greece lies in investors' confidence. At this point, investors' confidence in Indonesia remains high, thanks to Indonesia's political stability and the government's decent management of the economy. Indonesia is also helped by China's growing appetite for Indonesia's raw materials to fuel its economic boom. Thus, Indonesia will see decent economic growth for the next few years.

Still, parties will always end. China's economic engine may one day splutter. Indonesia may experience political instability. Investors may be spooked and leave the region in droves should they sniff any whiff of impending political or economic disaster looming over the horizon.

At that time, should corruption, inefficiency, and waste remains high, Indonesia may see a replay of "the Greek Tragedy". Don't expect any of Indonesia's neighboring countries will come and help. When push comes to shove, as the experience of 1998 proved and the Greece experience confirmed, Indonesia can only rely on itself.
Indonesia is living on a borrowed time. While times are good, the Indonesian government should focus more on eradicating corruption, streamlining the bloated bureaucracy and making cuts into unnecessary expenditure.
SBY's landslide victory in 2009 election showed that people cared a lot about high economic growth and eradicating corruption. These were the messages that resonated with the public.

Recent outrages over "mafias" in the tax office, judiciary, attorney general's office and police force show that people still care about the government doing the right things. People actually demand that the government do something to cut down further on corruption.

"The Greek tragedy" shows that unchecked corruption in the end could be the straw that would break the camel's back.

This year is the 12th anniversary of the May Riot. Back then, Indonesia barely survived the political chaos, the economic collapse, and the ethno-religious strife. The Indonesian government needs to ensure that there will not be any repeat performance of that tragedy.