|
Consumerist spending habits are often blamed for the economic
problems facing Indonesia today. However, curbing household spending is
not the way to go. For the economy, the issue is in reality not one of
too much consumer spending, but rather too little investment.
Over a week has passed since Idul Fitri -- the end of the Islamic
fasting month. The celebrations were marked by a week-long holiday,
which provided a chance for many to return to their hometowns and get
together again with their families. This also entailed a massive
logistical exercise, as Muslims from all levels of society flocked to
stock up on food and new clothes for the festivities.
As happens every year, this year's Idul Fitri celebrations were not
without controversy. Many key figures in society -- preachers, scholars
and politicians alike -- voiced concerns that the celebrations had been
hijacked by many as an excuse to engage in an orgy of spending and
consumerism at a time when Indonesia is still facing many economic
problems.
Indeed, perceived extravagant spending is seen by many as one of the
causes of our economic problems. The insatiable demand for luxury
imports from high-income households helps drain the country's foreign
currency reserves, which otherwise could be used more productively,
e.g. to import machinery and capital goods.
Meanwhile, excessive spending by lower-income households results in
rising household debt -- which results in its share of social and
economic problems, such as crime, loan-sharking, and credit-card debt.
Some go further and associate consumptive behavior with low
productivity and a high proportion of household consumption relative to
national income.
But on the whole, are Indonesians really consuming too much? There
seems to be no straightforward answer, as the evidence from the
statistical data is mixed. National accounts data suggest there have
been savings shortfalls equivalent to between roughly 5 and 10 percent
of national income, but the strong current account surplus of over US$4
billion experienced in the first half of the year shows that there is
an excess of savings.
But whatever the answer, reducing consumption doe not seem to be the
way to go. Local preachers may well be sincere in advising their
followers to curb spending and to save for the future. It may sound
like the logical thing to do for an individual. But such advice could
be devastating if heeded on a major scale.
A household may save money if it decides to, say, buy fewer meatballs
per month. But as a result, the meatball vendor will be able to save
less as he or she earns less. So, on the whole, the economy will not be
able to increase savings by curbing consumption. If Indonesians
suddenly decide to start tightening their belts, the result would be a
big increase in unemployment and poverty.
This rule applies to both low and high-income households. Lower-income
households tend to consume domestically produced items; so if they rein
in their spending, many small-scale businesses would take a hit.
Meanwhile, high-income households tend to spend more on imported items,
but even this is better than nothing. Of course, consumption of
domestically produced goods would be preferable to imports. But
included within the price of an imported designer outfit or a luxury
car are the margins of the domestic importer and retailer, not to
mention the taxes collected by the government. Curbing household
spending on luxury items would obviously affect both of these.
In short, the current problem facing the economy is not that
consumption is too high, but rather that investment is too low! By
raising investment, savings could increase even without a reduction in
consumption.
Idle funds are plentiful; it's the investment opportunities that are
not. Currently over one-third of the money deposited in the banks is
not being lent out. If households decide to spend less and deposit more
in the banks, the money may not necessarily be put to productive use.
The ultimate consequence for the economy would be a reduction in
aggregate income as mentioned previously.
So, at the end of the day, it all comes back to the long-acknowledged
need to improve the investment climate and reduce the barriers to
investment. If this was done, then one would not need to worry about
whether Indonesians were spending too much. In the meantime, the
spending habits of Indonesians, consumptive or not, do not seem to pose
much of a problem -- at least not from an economist's point of view.
-- The writer is an economist with Bahana Securities.
|
