In economic theory, too much money chasing too few goods results in inflation. What about if there is too much money but there aren't that many items worth spending on?
Ironically, if not tragically, Indonesia today finds itself in this very strange situation. It's not that we have too much money per se, because poverty still abounds. But Indonesia today offers so few opportunities for investors and entrepreneurs, local or foreign, that they have decided to skip the country, at least in the past few years, and look for opportunities elsewhere, even if the money is available here.
This is nothing short of scandalous at a time when nearly half of the country's 220 million people live in poverty, and at a time when more than 40 million people, or about 40 percent of the workforce, are either unemployed or underemployed.
Imagine if all this money had been put into productive use, meaning invested in worthy projects that created jobs, provided income and lifted people out of poverty. Imagine the multiplier effects that this would have had on the rest of the economy.
Indonesia would be out there with China, India and Vietnam, clocking 8 percent or more economic growth every year. Instead, we had to settle for the estimated 5.5 percent growth in gross domestic product in 2006. This year the government is making a modest prediction of 6.3 percent growth, at most.
Yet, evidence that the country is flush with idle funds is plentiful.
The government has repaid its loan to the International Monetary Fund ahead of schedule. The country's foreign exchange reserves stood at a healthy $42 billion dollars at the end of 2006. Stock prices hit the roof in 2006, with the Jakarta Stock Exchange breaking the 1,800 level.
The banking sector at one time had something like Rp 200 trillion ($20 billion) in third-party fund, mostly time deposits, that it could not channel into loans. Instead, this money is parked in central bank bills and government bonds, earning pretty interest rates, which incidentally are paid out at taxpayers' expense.
The World Bank on Thursday also disclosed that Indonesia has something like $41 billion in pension and insurance funds, and money in the capital market that has remained largely untapped.
There is also a huge surplus of money in the hands of regional governments who fear spending it lest the anti-corruption commission come after them.
And as we all know, many Indonesian tycoons still have their funds stashed offshore, part of the massive capital flight in the wake of the 1998 economic crisis. They, and many foreign investors, know full well the potential Indonesia has to offer, but still they are not coming in because there are just too many obstacles.
Even our exporters still prefer to keep a large part of their export revenue offshore, in a vote of no-confidence on the Indonesian economy. One official estimated that as much as a third of Indonesia's export earnings go into offshore accounts.
Unlike in the wake of the 1998 economic crisis when the country was so severely short of funds it required a massive international bailout, today money is no objection as far as Indonesia is concerned. In fact, we have ""too much"" of it, here and abroad, just dying to see some action.
This is not only costing us in terms of lost opportunities, but as we have seen, taxpayers have to shoulder the burden of paying commercial banks to keep their funds idle.
The central bank has started to ease lending rules for commercial banks, as announced by Bank Indonesia Governor Burhanuddin Abdullah at the annual Bankers' Dinner on Friday. And its benchmark interest rate was further cut to 9.5 percent at the start of the year.
Even then, bank lending is expected to grow by only 18 percent this year, up from 13 percent in 2006, but still considerably lower than the 30 percent that the country should see to achieve the economic growth rates in China and India.
Ultimately, Indonesia's economic problem is not so much a lack of access to the plentiful funds, or in not having creative entrepreneurs. The problem is more the lack of investment opportunities, and an overall atmosphere that is simply not conducive to investors and entrepreneurs.
Don't blame the monetary or financial sectors for not channeling the money fast enough to reinvigorate the economy. The onus is on the government to create the environment necessary to put Indonesia back on the path of high economic growth rates.
As it is at the moment, we are in the bizarre situation of having too much money and no idea how to spend it.
