SHOULD
INDONESIA RELY
ON THE US DOLLAR ?
Oleh : Imam Nur Azis and Jason Meade*
The U.S. dollar should
remain weak over the next decade at least, for a number of
reasons. Firstly, the U.S. is currently incurring enormous
budget deficits which are being financed by taking on new
debt. However, the borrowing the U.S. government is committing
to is not intended to finance anything
productive or positively beneficial to the United States.
The bulk of the money
being borrowed is being spent on increased defense and "homeland
security" related initiatives. Unfortunately, these initiatives
are only
intended to prevent a catastrophic attack on the U.S.
Even if every one of these
initiatives is completelysuccessful, they will contribute
little or nothing to the advancement of the U.S. economy.
They will only
prevent its retardation by antagonistic powers. The decay
of America's physical and human infrastructure will continue
unabated under the current government
initiatives, and will even be exacerbated by the future need
to repay the debts currently being taken on.
Over the next decade,
the debts being incurred today will have to be repaid by the
Americans. However, since the Bush administration is simultaneously
pushing for large and permanent tax reductions for the richest
segments of American society, the burden of repaying today's
debts will almost certainly fall to
the individual American taxpayers of the middle and lower
classes.
This repayment will come
either in the form of further government cutbacks, or increased
taxes, or both. Whatever the final formula, the outcome will
be the
same -- a severe reduction in the economic health of the average
American consumer and of the national economy generally.
As an example of the long-term
effects of the current budget problems, consider the case
of publicly funded university education in the United States.
A large
number of the American states have been forced to raise the
attendance fees at publicly funded universities substantially
over the past two years, and further large increases are contemplated
for at least the next year or two.
As a result, the number
of people enrolling in university has declined noticeably
each year, which may eventually affect the workforce.
The effect will be long-term
and may be irreversible. At the same time, fewer foreign students
are being allowed into American universities as a result of
"homeland security" concerns, and those who are
admitted face even larger bills than the American students
do.
The current U.S. economic
situation demonstrates that the consumer spending levels are
probably already unsustainable, and that anything from a gentle
decline
to a crash in those levels should be considered as a serious
possibility over the next five years to 10 years. Of course,
this would have extremely serious
consequences for the U.S. economy and its international position
generally.
The business community
in the U.S. faces an array of new, and possibly permanent,
burdens on the conduct of its affairs. The broadest burden
is the loss of confidence on the part of both domestic and
foreign business and investment directors in the quality of
the U.S. economy.
The titanic corporate
scandals that have hit the American economy over the past
few years cast a long shadow over investor confidence, and
the lackluster
government response to the crisis has failed to dispel that
shadow.
Also, the constant government
warnings of impending terrorist attacks against U.S. targets
have also served to dampen the spirits of both consumers and
business people. The airline industry has been particularly
hard hit by this phenomenon. Furthermore, the deterioration
of the national infrastructure also
contributes to the gloomy outlook for American business.
At the same time, U.S.
businesses face many real and unexpected burdens stemming
from the "war on terrorism". There are many new
rules and regulations
associated with preventing terrorism. These rules and regulations
frequently require businesses to change their operating procedures,
retrain some employees,
and file more paperwork.
Businesses also face new
fines for not complying with the new regulations. None of
this extra work contributes to the profitability of the companies.
As in the case of increased government spending, the increased
business spending is only intended to prevent a retardation
of business. Post Sept. 11 2001, U.S. businesses has faced
much more work and the need to spend more money to achieve
the same outcome as they would have had before the terrorist
attacks.
These increased operating
costs are most likely permanent. At the very least they will
persist through the rest of the decade. Therefore, U.S. business
will
either have to raise prices to cover the new costs of doing
business (which will further hit the American consumer), or
else keep prices the same and accept a
lower level of profitability. Either scenario works out to
yet another hit against the U.S. economy.
All these trends indicate
a further weakening of the American economy over the next
decade. The above areas of concern are by no means comprehensive
of the
problems facing the U.S. economy. Specific issues relating
to the projected series of foreign military actions have not
even been considered here, for example. The intent is only
to show the breadth of the problem.
The U.S. economy is the
pillar on which the strength of the dollar rests. Without
the economy, the dollar will be of little value. Therefore,
it is quite prudent for the Indonesian government to reexamine
the wisdom of its reliance on the dollar. As Vice President
Hamzah Haz has noted, the switch from the U.S. dollar to the
Euro ought not to be carried out for political reasons, but
there are definitely sound economic reasons to question the
future strength of the dollar.
*alumni
of the Leeds University in the United Kingdom.
(Dimuat
di harian The Jakarta Post, 22 April 2003)
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