Academic journal article Journal of Southeast Asian Economies

Assessing Indonesia's Sustainable Development: Long-Run Trend, Impact of the Crisis, and Adjustment during the Recovery Period

Academic journal article Journal of Southeast Asian Economies

Assessing Indonesia's Sustainable Development: Long-Run Trend, Impact of the Crisis, and Adjustment during the Recovery Period

Article excerpt

I. Introduction

The "miracle" of rapid economic growth in many East Asian countries, including Indonesia, had been widely perceived as the norm, until the 1997-98 financial and economic crises. Some have argued that the miraculous economic performance had not been properly measured, such as not taking into account the high rate of natural resource depletion and environmental degradation that accompanied the process. This raises the question whether the East Asian economies have developed in a sustainable manner, and how the economic crisis has affected the economic sustainability of these countries. Answers to such questions are of high importance to countries like Indonesia. As the economic and social costs of the crises are enormous, assessing its consequences on broader issues of sustainable development, and on environmental costs in particular, will provide lessons learned for the present and future generations. The objective of this article is to provide answers to the above question, by assessing the sustainability of Indonesia's long-run economic development, both before and after the crisis.

Following this introduction, Section II outlines the conceptual framework used to determine sustainable development. Section III outlines the methodology and data used in the computation of indicators for sustainable development (i.e. genuine savings and change in wealth per capita). Discussion of the results in Section IV is divided into three subsections, based on: (i) the overall long-run trend in sustainability; (ii) sustainability before the crisis; and (iii) the impact of the crisis on sustainability during the adjustment period. Section V concludes with some policy implications.

II. The Conceptual Framework

One of the most universally quoted definitions of sustainable development is the one cited by the World Commission on Environment and Development, also known as the Brundtland Commission, which defines it as:

   Economic and social development that meets
   the needs of the current generation without
   undermining the ability of future generations to
   meet their own needs (WCED 1987).

Following the publication of the Brundtland report, there has been a rapid escalation of alternative definitions of sustainable development, and lists are provided by several authors (Pezzey 1989; Pearce, Barbier, and Markandya 1990; and Rees 1989). Mitlin (1992) notes that, in general, the definitions involve two main components: (i) the meaning of development (i.e. what are the main goals of development: economic growth, basic needs, rights, etc.); and (ii) the conditions necessary for sustainability.

Economics has its own interpretation of this definition, and restates it in a more compact form, that is: sustainable development is defined as non-declining welfare per capita. As long as the future generation is as well off as the current one, then development is sustainable. Measurable and applicable sustainable development indicators have to be able to show this. The practical problem with this definition is how to measure welfare?

To overcome the problem in measuring welfare directly, economics proposes the concept of "capital basis for sustainable development". Capital stock indicates the ability of an economy to produce output, and thereby generate well being. It is the productive capacity of an economy that improves the welfare of its people. Therefore, if the economy can sustain productive capacity, then the economy can sustain its peoples' well-being. The capital basis for sustainable development translates into what is called the "constant capital rule". (1) Non-declining welfare per capita can be guaranteed by a non-declining capital stock. A non-declining capital stock would mean non-declining well-being per capita. Therefore, in order to determine whether an economy is on a sustainable development path, we only need to know the path of its capital stock over time. …

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