Indonesia Update:
An Economic Titanic

— Malik Miah

LIVING IN AN Economic Nightmare is the headline of Time Asia’s cover story on Indonesia (August 3). In one year’s time Indonesia’s per capita income dropped from $1300 per capita to less than $300.

In human terms, this has meant unbelievable suffering for an average working person. According to Indonesian government figures, more than 50 million people have fallen below the poverty line since the country’s financial crisis began in July 1997.

“The Central Bureau of Statistics projects that by the end of the year almost half of the country’s 202 million people will be living in penury,” writes David Liebhold. “It is estimated that 10 million jobs have been lost since August [1997] and, with inflation headed for an annual 100 percent, real incomes will effectively be halved.

“Things are so bad, in fact, that even stock market analysts are emerging from behind their computer terminals to plead the case of the poor. ‘Indonesia needs a lot of money and it needs it now,’ says Bruce Rolph, a director of Indonesia’s state-owned Bahana Securities. ‘It doesn’t need it for structural adjustment – it needs it for food. The world needs to know just how bad things are. This is a just cause. Indonesia is now the world’s Titanic, in terms of the need for humanitarian aid.”

Other analysts say – it’s hard to get accurate statistics – that the economy contracted sixteen percent in the first six month’s of the crisis, and will likely fall to twenty percent by year’s end. (Chile in the 1970s under Pinochet was considered an economic basket case when its economy contracted twenty percent over four years!)

The rupiah has declined eighty-two percent in one year, trading as high as 17,500 rupiah per dollar. In June 1997, the exchange rate was 2,400 rupiah per dollar. “This crisis,” Hadi Soesastro, director of the Jakarta-based Centre for Strategic and International Studies (CSIS) told Time Asia, “will take the urban economy back fifteen years. But the rural economy will go back to the 1970s.”

“No country in recent history,” states a World Bank report, “let alone the size of Indonesia, has ever suffered such a dramatic reversal of fortune.” The IMF’s Asia-Pacific director Hubert Neiss adds: “It has not bottomed out yet.” The IMF’s hope, he said, is the rupiah will stabilize at 10,600 to the dollar by March 31, 1999.

Not surprisingly the Western banks and governments are trying to save the new military-backed regime of President Habibie who took over from the disgraced Suharto May 21. While the political crisis continues unabated with strikes, land seizures by peasants, new parties being formed (forty so far), Habibie has won the support of the Western powers and their funds.

The International Monetary Fund (IMF) has resumed its $43 billion bailout package with a modified timetable on implementation of its austerity plan. The World Bank and the Asian Development Bank have added $6 billion to the package. On July 30, the Consultative Group on Indonesia (CGI, chaired by the World Bank) pledged $7.9 billion in disbursements for the year ending March 31, 1999.

Habibie has secured a moratorium on the principal repayments on the country’s public debt. The $80 billion private debt is also being renegotiated with the Western banks.


In an attempt to make himself over as a “reformer” and not a Suharto clone, Habibie has declared over and over again: “I am not a king,” and opened discussions with opposition figures, freed some political prisoners, condemned racist violence against ethnic Chinese, arrested military personnel involved in terror campaigns against pro-democracy activists and indicated a willingness to change the status of occupied East Timor.

At the same time, Habibie retreated on his pledge to be a “transitional president.” He now says he hasn’t decided his future. New parliamentary elections, he says, will take place in May 1999 and the election of a new president will follow in December. The student movement, which spearheaded the mass actions that brought Suharto down, however, opposes this timetable as do most opposition figures.

The stance of Washington has been best expressed by the Defense Department. Testifying before the House International Relations Subcommittee on International Operations and Human Rights July 24, Assistant Secretary of Defense for International Security Affairs Franklin Kramer said:

“Indonesia is particularly important to the Department of Defense because of the key role it has played and will continue to play in the stability of the Asia-Pacific region.”

Although in May the Pentagon suspended temporarily joint military training with the Indonesian armed forces, Kramer told the committee: “We believe professionalizing the Indonesian armed forces will help reduce human rights abuses by the military.” The Pentagon claims it had no knowledge of the special unit forces involved in the disappearance of pro-democracy activists, the killing of ethnic Chinese and students by organized mobs.

Secretary of State Madeleine Albright in a speech to the American Chamber of Commerce in Manila at the end of July added: “In some countries, the medicine of economic reform will be bitter. It requires the old ways of doing business must change. The consequences for workers and families caught in the middle can be difficult and unfair. But this does not change the fact that reform is medicine. If refused, the illness only grows worse.”

What Albright calls “difficult” and “unfair” medicine for workers and peasants (still seventy percent of Indonesia’s population lives in rural areas) is really much worse. Rice for most Indonesians is now a luxury.

As one report in The New York Times shows, tree bark is now the main meal for many women and children:

“Efriendi Bea is due to give birth in a few weeks. Mrs. Bea, 27, sat on a creaky wooden bed in her dirt-floor hut, decorated with a 1990 calendar and glossy advertisements ripped out of an Indonesian magazine, and said that despite her pregnancy she is eating nothing but bark and roots foraged in the woods.”

According to the World Bank, some thirty-nine percent of Indonesian children were malnourished before the economic catastrophe. One rural doctor told the Times, “We rarely see people from severe malnutrition. Because if they can’t afford food, then they can’t afford to come to a hospital.”

On August 1, the minimal wage officially rose fifteen percent. But even those who are lucky enough to be employed, it’s not likely the employers will pay. Most local employers had refused to pay the old rate. Even the armed forces’ businesses have been hit hard by the financial crisis, cutting into the profits of generals and funding to special units, leading to an increase in desertions.

What makes the economic nightmare so frightening to the regime is that the military high command and the Western bankers is the IMF-mandated austerity medicine isn’t working. This is leading more workers and farmers to take things into their own hands. Strikes are up. Land occupations are rising. Calls for autonomy and separation from the central government are heard across the country (not surprisingly, given that provinces traditionally are governed by officials hand-picked in Jakarta).

A case in point: Spade-wielding farmers in Cimacan, West Java, took over a picture-postcard nine-hole golf course in June as golfers fled to their cars. “But the farmers didn’t have violence on their minds,” reported John McBeth of the Far Eastern Economic Review.

“Instead, watched at a distance by police and security guards, all they did was spend four hours digging slogans into the manicured fairways, using the turned-over sod to border their handiwork. Alongside the words Tanak rakyat (‘People’s land’), Kami ambil hak kami (‘We take what is ours’) and Reformasi (‘Reform’), the farmers also planted two grown carrots, to underscore their point that this was agricultural land.”

Malik Miah is the co-editor of IndonesiaAlert! and an advisory editor of Against the Current.

ATC 76, September–October 1998