Causes of the crisis

Causes of the crisis

Now that Indonesia is experiencing an economic meltdown, it
may be more than instructive to look at what caused it.

Unlike the IMF, I do not think poor fiscal and monetary
policies and market imperfections were the prime causes. Rather,
the origins of the present crisis lie much deeper, in the very
fabric of Indonesian society.

First, there has been a failure to integrate and obtain the
loyalty of the economically powerful ethnic Chinese community,
thus increasing the country's vulnerability to capital flight.
Huge disparities of wealth have left vast amounts of surplus
capital in the hands of a few and, thus, have also increased the
possibility of capital flight.

Second, many of the country's banks are amateurish with
patronizing and bureaucratic attitudes irresponsive to the needs
of competitive business.

Third, there has been an emphasis on the notional rather than
the actual, on semblance rather than substance, in education,
business, society, politics, law, religion etc.

Fourth, there has been a level of optimism and consumerism
disproportionate to the productivity of Indonesia's human
resources leading to massive short-term borrowing overseas.

Fifth, there has been tremendous uncertainty regarding the
presidential succession and the possibility of a tumultuous
handover of power.

Thus, unlike those in Mexico and Argentina before it,
Indonesia's problems are deep-seated and will not respond merely
to economic tinkering. Unless a clear-sighted approach is applied
to deal with the above problems, confidence in the economy will
continue to plummet. The resulting black hole created may cause
huge shock waves across the globe.

Having enjoyed the spoils of Indonesia's now rapidly
evaporating economic success, the West would be foolish to do
little more than offer palliatives. The way the West handles this
crisis will be crucial, not only to its own economies but also to
the way it is seen in the Islamic world and the developing world
for years to come. What is required is unequivocable economic and
moral support on a massive scale, allowing Indonesia the time it
needs to make essential, profound and difficult adjustments
amounting to a veritable revolution that could otherwise turn
violent.

FRANK RICHARDSON

Jakarta