Will economic crisis plunge
Indonesia into social and political crisis?
March 13, 1998
in this forum:
How likely is a revolution if the economic situation continues to worsen? If things continue to worsen and riots become violent, how important of a role will the military play? Why should the IMF and the international community bail-out his regime? What about the social costs of the crisis for the Indonesian people? Is the U.S. prepared to the end its support for Suharto ? Katherine Natale of New York, NY, asks: According to all the reports I have read, it seems to me that the international community has long been aware of President Suhartos crony capitalism, not to mention various human rights abuses committed by his government. Why should the IMF and the international community bail-out his regime? Wouldnt this be similar to rewarding him, not to mention the international financiers, for past abuses?
John Hughes, former editor and publisher of the Christian Science Monitor, responds:
The best solution would be for Suharto to implement the reforms desired by the IMF, and for IMF aid to be forthcoming. We should try to avoid cutting Indonesia off and seeing it go down the tube. Indonesia is important to Southeast Asia and certainly to the United States. Yes, Suharto has feathered the family nest and yes, there are human rights abuses. But I think the world has more to gain by nudging Indonesia in a positive direction than confronting it and isolating it. It can be done.
Edward Masters, former U.S. ambassador to Indonesia, responds:
I don't think we should view the IMF agreements and broad international support for those agreements as "bailing out" the Suharto government. Rather, they are designed to shore up a very important country, the fourth most populous in the world and one in which we have strong economic, political and strategic interests. There are also strong humanitarian reasons for us and the international community generally to do everything we can to stabilize the situation and alleviate suffering.
The Indonesian rupiah has lost some 80 percent of its previous value and the resulting financial crisis has created the greatest hardships for the people in the past 30 years. Several million Indonesians have already lost their jobs, prices of essential items have skyrocketed, some goods are not available at any price, and manufacturing has come to a virtual standstill because firms have no foreign exchange to import needed raw materials. Land and real estate values have been cut in half, and inflation could reach 50 to 60 percent this year. The head of the American Chamber of Commerce in Jakarta, who recently visited Washington, estimated that total unemployment by the end of this year could reach l0 million. The life savings of many people have been wiped out, and food and essential medicines are in short supply.
All this is occurring at a time when Indonesians have already been suffering because of the vagaries of Mother Nature. One of the significant achievements of the Suharto government has been achievement of self-sufficiency in rice, but the combined effect of the El Nino drought -- the most serious in recent memory -- and last year's massive forest fires will result in a crop this year that is likely to be l5 percent below the target. Some observers believe the deficit could be several million tons.
We and the international community -- and I must say that I wish Japan and the European Community were more active rather than riding on our coat tails -- must do what we can to stimulate basic reforms in Indonesia and ensure adherence to the IMF agreements. However, in the final analysis I don't think we should do this at the risk of adding to the suffering of the people. Our top priority should be to work with Indonesia, the IMF and other nations to get Indonesia's economy functioning again
Ralph Cossa, Executive Director of the Pacific Forum at the Center for Strategic International Studies, responds:
IMF bailouts are not "rewards" for past sins or free hand-outs but rather are efforts to help stimulate long overdue reforms by tying loans to specific corrective actions. Perhaps more enlightened leadership on the part of Suharto could have averted the crisis, but we must respond today to the situation at hand. A collapse of the Indonesian economy will have international ramifications and will cause the greatest suffering among the people least to blame for the problem. In short, IMF loans should not be seen as rewards for past abuses but rather as a vehicle designed to reduce or eliminate future ones.