1990s >> 1998 >> no-1124-april-1998

Crisis in Indonesia

In 1965, General Suharto came to power in a military coup in Indonesia that had the full backing of Britain and the US. During a Cold War arms build-up and a world focusing on the Vietnam War and the “communist threat”, Suharto became a welcome ally as he massacred 600,000 of his opponents. In the years that followed, Suharto would consolidate his power, corruption would take on a whole new meaning and Indonesia would become a by-word for human rights abuses, most notably following the annexation of East Timor and the massacre of a further 200,000. All the while, the West turned a blind eye, supplying him with arms and training his military staff–interested only in the vast oil reserves Indonesia straddles.

Western eyes are now looking cautiously at Indonesia. In July of last year, the economy began to collapse and reached real crisis point during January of this year. Inflation rocketed and bankruptcies followed. Basic foodstuffs have more than doubled in price and thousands have died of hunger.

That much of his happened during January–a month of self-restraint (Ramadan) for Indonesia’s moslems–perhaps explains why food riots born of country-wide discontent did not erupt fully until February, with Chinese food stores and restaurants taking much of the impact. The Chinese, who make up five percent of the population, were readily perceived as being the cause of the food shortages. That they own 70 percent of Indonesia’s wealth was reason enough to convince angry crowds that they had grown rich off the backs of the masses.

Media analysts fear more trouble ahead, indeed a total meltdown of the Indonesian economy within the next month, particularly in light of a recent IMF decision to delay disbursement of the next tranche of a $43 billion bailout.

The IMF agreed to the $43 billion lifeline on condition that Suharto reformed a structure of monopolies, tariffs and subsidies–in other words, the targeting of the interests of his cronies and six offspring.

Suharto accused the IMF of trying to impose a liberal economy on the country, which he claimed was not in line with Article 33 of the Indonesian constitution, which stipulates that the economy should be developed along “family principles and which stresses ‘regulated cooperatives’ rather than the ‘free market'”.

Back to basics
“Family principles” takes on a whole new meaning in Indonesia. Not only is nepotism rampant, with Suharto’s relatives up to their necks in all manner corruption, but Suharto himself is estimated to have assets worth over $40 billion (coincidentally the size of the IMF loan he is haggling over).

Having promised to give Indonesia’s central bank full autonomy over monetary policy, Suharto then sacked its governor and directors for objecting to his plans for an “IMF-plus measure”–the setting up of a currency board charged with pegging the Indonesian rupiah to the US dollar. Not only was this opposed by the IMF, the World Bank, the US and the EU, but his own critics in Indonesia lambasted it, pointing to the country’s limited foreign reserves and corrupt bureaucracy.

Having just been elected president for the seventh time, to rule for another five years, by a 1,000-member electoral assembly he vetted himself, Suharto is taking economic advice from his schoolfriend Professor Jusuf Habiba. Habiba’s economic competence has long been questioned–even by Western economists who still dream up futile models of how capitalism can best work–at least since his “zig-zag” theory which professed that rising inflation is best offset with low interest rates.

It is highly likely that a state of emergency will be declared shortly. Riots have been widespread, often urged on by students less inclined to the rhetoric of scape-goating. Panic buying has emptied shelves and forced many shops to close and the military is becoming edgy, fearful for its own interests. With a restless population of over 200 million, split into 300 ethnic groups, Indonesia faces a precarious next few months.

If the worst does come, we can well imagine the front page analysts pointing to Suharto’s corruption and poor economic insight as a cause, and others to the “bursting bubble” of the Asian economic miracle and its wider dimensions. None, we predict, will point out that this is how capitalism functions, that capitalism is an archaic, chaotic and ungovernable system. And we are not being churlish in suggesting that nothing out of the ordinary is happening Indonesia–for this is capitalism working normally, according to its own insane logic.

Our sympathies go out to the millions destined to suffer in the madness, the millions who will in fact lend their support to the same system that has impoverished them, and who will always suffer until it dawns on them there is an alternative and that it is they alone who can bring it about.

John Bissett