April 21st 2001

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Articles from this issue:

INTERVIEW: Refugees - what should we do?

EDITORIAL: Defence - the way forward

CANBERRA OBSERVED: Costello's future linked to Howard's fate

INDONESIA : Can Wahid survive IMF demands and army intrigue?

TRADE : Why US trade deal won't fly

ENVIRONMENT: Kyoto greenhouse Protocol "dead in the water"

New Voluntary Euthanasia Bill in SA

Grain farmers tackle crisis in agriculture

Straws in the Wind



COMMENT: How modern culture erodes family ties

DRUGS: Guarded optimism after Melbourne summit

ECONOMICS: Victims of the "new economy"

EDUCATION: "Educational Left" - how it failed schools

BOOKS: "How many divisions ... ?"

BOOKS: Business ethics: 'NO LOGO', by Naomi Klein

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Can Wahid survive IMF demands and army intrigue?

by Greg Poulgrain

News Weekly, April 21, 2001
The outcome of the IMF mission to Jakarta last week, to release or not release another $400 million of the $5 billion lending program, is pressing also on the fate of President Abdurrahman Wahid.

Although the five months' delay was attributed to the slow progress in reform, the political implications in Jakarta increased the pressure on Wahid. His idiosyncratic style of leadership has surprised and frustrated both friends and enemies, so much so that now he is mustering his forces to avoid impeachment.

Granting the loan will seemingly increase his chances of survival, but at the same time the IMF will impose stringent terms which will have adverse political implications. Corporate restructuring will now proceed along IMF lines rather than the alleged alternative of favouring politically connected companies. Negotiating this course of action is what caused the delay in releasing the next loan.

Currency collapse

Meanwhile, the declining value of the Indonesian rupiah (now Rp10,800 to the US$) which is symptomatic of the overall economic and political malaise, has exacerbated the crisis. As both the rupiah and the political situation worsened, Indonesia's bargaining power also deteriorated.

A Bank of Indonesia official said that a further 20 domestic banks face closure this year, three of which were under the control of the Indonesian Bank Restructuring Agency (IBRA), a unit of the Finance Ministry. If the banks close, the Government will have to meet their obligations, including those to depositors, under the Government's blanket guarantee for bank deposits.

IBRA has majority ownerships in eleven private banks, after their recapitalisation in 1998 and 1999 was financed by the Indonesian government. By issuing 430 trillion rupiahs' worth of bonds, 27 banks were recapitalised, including four state-owned banks, several regional development banks, and the eleven private banks. To say that "the state budget covers the interest costs of the bonds" is easier said than done when the enormity of the economic crisis now facing Indonesia is unprecedented.

When a similar situation (but in a Cold War setting) occurred in Indonesia in 1965-66, USA and Japan profited immensely from the political fallout - for the next three decades. Indonesian banks and business interests jumped on the elevator of economic prosperity that became the catchcry of the Suharto era, but soon were embroiled in financial over-indulgence and a surfeit of non-profitable loans.

Fewer than 5 per cent of the population could have been described as "fat-cats", and perhaps as many as 25 per cent in the range of new middle class and another 25 per cent on the periphery, still poor but with aspirations. But a sizeable portion, about 45 per cent, were still trying to eke a living, completely bypassed by the so-called economic revolution.

The companies that fell foul of the economic crisis in 1996-97, those with potential, are now being snapped up by global corporations moving in behind the vanguard IMF.

But is the IMF underestimating how much the Indonesian people have learned from the trauma of the Suharto era? Too many impoverished people in Indonesia face another generation of poverty if they are not included in reformasi, and they have seen no sign of inclusion as yet. If they feel that democratisation is leading only to further deterioration, then they will not tolerate an IMF-negotiated settlement, they will run amok.

Last week 20,000 supporters of Abdurrahman Wahid pledged they were prepared to die to ensure he remained President. These zealots among his followers in NU (Nahdatul Ulama, the largest religious group in Indonesia numbering as many as 30 million) are willing to fight political opponents like Amien Rais, whose 25 million supporters are in the other main Muslim group, Mohammadiyah.

While the latter is described as "modernist" in Koranic interpretation and the NU group is "traditionalist", it will not be religious differences that cause conflict as much as economic deprivation and East Javanese regional pride tied to the loss of the region's political leader. The Indonesian economic forecast only increases the likelihood of conflict.

According to Indonesian Government calculations, this year's budget was based on an exchange rate of 7,800 rupiahs (not 10,800) to the US dollar; and a domestic interest rate of 11.5 per cent rather than the present 15 per cent. The actual deficit will far exceed the planned deficit of Rp 53 trillion, with the result that (from November 2001, according to The Straits Times) the Indonesian Government will not have enough money to pay its 6.5 million public servants.

Besides the falling rupiah and rising interest rates, there is dwindling foreign investment because of political instability - in Jakarta and in many outer regions of Indonesia, Aceh and West Papua being the most notable. But it is the Indonesian army rather than the Indonesian president that is at fault here.

Those foreign governments such as Australia's - which insist on supporting the army as though it were the front-line defence of democracy - are in fact supporting the main force throughout the archipelago that is working against implementation of Indonesian democracy.

The bombing of the Jakarta Stock Exchange last September (15 dead), the church bombings last Christmas (19 dead) and the discovery of 1,500 time-bomb devices in a Jakarta factory have been linked to the army. This leaves no doubt that the current instability is intended as a political weapon against democratisation.

The army sees itself as a defender of peace and security, but only if reinstated to the political heights it formerly held in the heyday of the Suharto era, the prospect of which is anathema to democratic reform.

At this stage of Indonesia's economic crisis with the focus on re-capitalisation and IMF intervention, instability might be seen by some as a stepping stone to advantageous investment in the next stage of Indonesian development.

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