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