Indonesia a front line against terrorism<\/p>\n
J. Andrew Spindler, Executive Director, Financial Services,
\nVolunteer Corps (FSVC). John L. Walker, President, FSVC Board,
\nNew York<\/p>\n
Indonesia has become a crucial front line in the war against
\nterrorism. This development, so far, has escaped the attention of
\nmost Americans. While the United States and its allies have been
\npreoccupied with other aspects of the new war, a smoldering fire
\nis burning in the world's largest Muslim nation.<\/p>\n
Three and one-half years after the downfall of Soeharto,
\nIndonesia could yet become a model democratic market economy for
\nthe rest of the Islamic world. But the likelihood of an
\nalternative scenario, over the near term and perhaps beyond, is
\ngrowing: Indonesia could become a hotbed of anti-Western
\nsentiment, fanned by economic failure on a scale that few other
\ncountries could rival.<\/p>\n
The West has a huge stake in the direction that Indonesia
\nheads, and its direction will greatly affect the war against
\nterrorism.<\/p>\n
Indonesia is languishing in the fifth year of an economic
\ncrisis of gigantic proportions. At present, most of the country's
\neconomic indicators are deeply troubling.<\/p>\n
Most ominous of all, the growth rate, which is declining,
\ncurrently is not sufficient to create enough new jobs to employ
\nthe fast growing population. At 228 million, that population is
\nalready the fourth largest in the world. Despite such
\ninauspicious circumstances, President Megawati Soekarnoputri has
\na better chance to promote a democratic market economy than any
\nof her predecessors.<\/p>\n
Buttressed by support from the West, Indonesia could continue
\nto head in fits and starts toward democracy, a market economy and
\nglobalization. Its progress could be interrupted indefinitely,
\nhowever, if a lethal mix of radicalism and economic crisis
\ncreated sufficiently volatile conditions to lead to the
\nrestoration of authoritarian rule.<\/p>\n
Still another possibility is that the country will
\ndisintegrate, and the refugee exodus could easily number in the
\nmillions.<\/p>\n
The biggest impediment to successful reform remains
\ncorruption, and a lack of appreciation for just how harmful such
\ncorruption is to reform.<\/p>\n
The path that Indonesia takes could influence the direction of
\neconomic development throughout the Islamic and emerging market
\nworlds. The West can no longer afford to underestimate the
\nstrategic importance of this huge and fragile country.
\nIndonesia's experiment with market economic principles, long
\nflawed by rampant corruption, weak respect for the rule of law,
\nand a teetering banking system, must succeed, and the global
\nstakes in the outcome are now greater than ever.<\/p>\n
What should be done? First, the Indonesian Bank Restructuring
\nAgency (IBRA) urgently needs to return control over a meaningful
\nshare of the $50 billion in assets that it manages to the private
\nsector. This should happen as fast as good buyers can be found,
\nand without political interference in the process.<\/p>\n
Second, the government promptly needs to signal its commitment
\nto honor past agreements with foreign investors. All too often,
\nJakarta has reneged on foreign investment transactions that have
\nthreatened the privileged positions of powerful local businesses.<\/p>\n
President Megawati must also move swiftly to express publicly
\nher serious commitment to fighting corruption. Western
\ngovernments should use their considerable influence to persuade
\nher to take this action, which would have an immediate positive
\nimpact on Indonesia's economic prospects and international image.<\/p>\n
If an economic disaster is to be averted in Indonesia over the
\nlonger term, the United States and its allies must work now to
\nhelp Indonesia build the infrastructure needed to sustain a
\nmarket economy, including strengthening adherence to the rule of
\nlaw and creating a functional banking system.<\/p>\n
Critical priorities in the legal sphere should be judicial
\nreform and the development of anti-corruption and bankruptcy
\nlaws. Assistance must also focus on helping Bank Indonesia to
\nstrengthen its market surveillance and bank supervision
\ncapabilities.<\/p>\n
Banks urgently need to channel savings to creditworthy
\nborrowers -- something that is not happening today. Additionally,
\nmajor technical support must help strengthen corporate governance
\npractices within the financial and business sectors.<\/p>\n
The battle to create a strong market economy in Indonesia will
\nnot be an easy one, and the infrastructure required to sustain it
\ncould take years to build. But this battle needs to be won. The
\nramifications of success or failure will reverberate throughout
\nthe Islamic world, throughout Asia, and well beyond.<\/p>\n
An economically sound and vibrant Indonesia could play a large
\nrole in winning the war against terrorism.<\/p>",
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