ASIA'S ECONOMIC FLU
January 9, 1998
Indonesia, once at the forefront of Asia's economic miracle, now faces economic catastrophe. Following a background report, Margaret Warner and guests discuss Indonesia's latest crisis and its global significance.
MARGARET WARNER: Indonesia has long been thought of by many Americans as a resort paradise. More recently, international investors have been attracted to its rapid economic growth. But economic trouble has now come to this Southeast Asian country, a nation of 200 million people scattered across more than 13,000 islands.
A RealAudio version of this segment is available.
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International Monetary Fund
Indonesia: The world's fourth largest country.
It is the world's fourth most populous country, and it's most populous Muslim country. From 1949, when Indonesia gained its independence, to the end of the Cold War 40 years later the United States courted Indonesian leaders and supported the Indonesian military to keep the country from falling to Communists. More recently, the U.S. Government has worked to ensure that Indonesia, a major U.S. trading partner, remained hospitable to American business interests. President Clinton toured the capital city of Jakarta during a trip there early in his presidency.
Indonesia is governed by the authoritarian regime of President Suharto. The 77-year-old general came to power in 1965 in a bloody anti-Communist purge that killed an estimated 1/2 million people. Under Suharto's rule, Indonesia was transformed from a poor and backward nation to an emerging economic power, one of the tigers of East Asia. Its annual per capita income soared from $50 to more than $1,000. The economic boom gave rise to a burgeoning middle class. But it also opened a huge gap between rich and poor.
Among those who became richest during this period were members of Suharto's family, many of them as a result of government favors. Suharto's son received major tax breaks to produce the national car, the Tiber. His daughters run the leading bus company in Indonesia, their buses running on gas refined by yet another Suharto son along toll roads operated by another Suharto daughter. Despite the cronyism, foreign investment continued to flow into the country. But last summer, Indonesia became one of the first nations to be hit by the currency crisis that has swept through Southeast Asia.
Since August, the Indonesian currency, the rupee, has lost 76 percent of its value from 2500 to the dollar to 10,000 to the dollar. The Indonesian stock market has lost nearly 60 percent of its value over the same period. Trying to avert a complete collapse the International Monetary Fund, the World Bank, the United States, and other donors put together a bailout package last October worth about $40 billion, but only on the condition that Suharto make major changes in the country's economic policies and business practices. President Suharto agreed to the terms.
On Tuesday, when he presented his new budget to parliament, he conceded the seriousness of the crisis and pledged his commitment to reform.
A commitment to reform?
PRESIDENT SUHARTO: (speaking through interpreter) The monetary crisis that has plagued this region is apparently more serious and long-lasting than first thought. Both regional and international actions must continue to be intensified; however, the solution will, in the final analysis, depend on each individual country. We will fight with all our strength to extricate ourselves from this crisis.
MARGARET WARNER: But the international markets reacted with alarm to the substance of the budget he presented, and yesterday, Indonesia's currency and stock market suffered their worst one-day losses yet. That prompted a wave of panic-buying by consumers who feared that their money would soon be worth next to nothing.