Free trade, or globalization, has caused much financial suffering in Indonesia, says a scholarly body, but the blame is laid squarely on the nation itself.

The Lembaga Ilmu Pengetahuan Indonesia (LIPI), a body of intellectuals, says that free trade and the process of globalization pains Indonesia to the tune of 18 trillion rupiah, or 1.9 billion dollars, per year, in the form of, they say, a 30% reduction of subsidies and tariffs that had previously protected Indonesian companies from the blustering winds of competition.

By way of explanation Carunia Mulya Firdausy, an analyst for the LIPI, said that Indonesia was stuck between a rock and a hard place. If globalisation were resisted the nation would be left behind, floundering, but if it were welcomed damage would be caused to hitherto coddled industries. Some countries, he said, such as China, had managed to benefit from globalization, to the tune of 37 billion dollars a year in the Chinese case, but Indonesia was not among the winners as yet.

One example he outlined was the matter of balance of trade with the east Asian region. Since 1985 the proportion of Indonesian exports going to its neighbours had risen from 9.9% to 27% by 2003, while this seemingly impressive performance was put into shadow by the comparison with imports from the same countries – these had risen from 13.8% of total in 1985 to 37.3% in 2003.

Carunia Mulya Firdausy advised that Indonesia had a tendency to place too much emphasis on increasing exports of raw materials and should focus more on manufacturing and downstream products, and that this was proof of Indonesia’s failure to take up and run with the opportunities presented by the globalization dynamic, and of a failure to increase factory productivity.

Without improvement in total factory productivity, he said, high economic growth could not be achieved, and he named technological factors as key in the battle for productivity gains. The underlying problem was that the basic “development” paradigm of Indonesia, pioneered in the 1960’s, focused on exploitation of the country’s natural wealth, and not on utilising the potential of people and technology.