Economy crippled

Not a single economic measure, however sound it may be, seems to matter anymore as Indonesia descends into near chaos and a number of foreign governments contemplate evacuation of their citizens from the country. President Soeharto's concession yesterday to downwardly revise the price of fuel oils and electricity, which were increased on May 5 to prevent the state budget from running into an unmanageable deficit, will do very little to lighten the burden on ordinary people. Furthermore, his reiteration that Indonesia will adhere in full to reform measures agreed with the International Monetary Fund will have little or no stabilizing effect on the economy.

The 58 percent interest rate offered by the central bank on promissory notes (SBIs) has been rendered ineffective as a means of attracting foreign money to strengthen the rupiah. The rupiah has instead fallen to below Rp 10,000 against the American dollar, well below this year's target rate of Rp 6,000. The punitively high interest rates, which have crippled business, now seem irrelevant to the curing of our economic woes. This is because of the prolonged period of turmoil, daily demonstrations, rioting, massive looting, and the rampages in Jakarta and several other provincial cities over the last few days. The trauma inflicted by this breakdown of law and order, the high death toll, and the huge material losses which have resulted have compounded the recession.

The country is moving inexorably towards a black hole as more and more worried entrepreneurs, both Chinese Indonesians and foreign, move their capital out of the country, this despite the painful reform measures which have been introduced. Until stability is restored, no new money will flow in. Even the next installment from the second tranche of IMF aid and assistance from other multilateral agencies and country donors are now at risk of further delay.

The riots are feeding fears on financial markets about the general business climate in Indonesia. This bearish spiral is turning in on itself. Every time the situation worsens, the rupiah falls, causing the price of basic goods to rise, which in turn inflames popular anger and leads to further unrest, and so on. Real wages have fallen by more than 50 percent over the past four months and hyper-inflation is taking hold of the economy. Furthermore, a large number of workers who have not already lost their jobs will do so over the next few months. Many will not be able to feed their families. What a vicious circle.

Indonesian economics ministers have rightly conceded that they are fighting a losing battle on the economic front if social and political unrest continues to escalate. Coordinating Minister for Economic and Financial Affairs Ginandjar Kartasasmita went as far as to say in Tokyo on Wednesday that the government must respond quickly and affirmatively to the student protests.

Ginandjar did not state so explicitly, but what he really meant was that the key to economic stability had shifted to the political field. Unless the government responds quickly and adequately to demands for overall political reform being made by students, intellectuals, professionals and politicians, none of the IMF economic reforms will be of any consequence whatsoever.

But response from the political leadership has so far been rather insignificant. What the national leadership has been trying to do so far is to simply keep what it sees as destabilizing forces at bay. This is not only exacerbating the economic crisis and political instability, but is also increasing the costs of the eventual and inevitable leadership succession, now seen to be the only way out of the present national crisis.