How to understand the crisis

The economic crisis befalling Indonesia has been dragging on with no hint as to when it will be over. The following two articles provide a political-culture approach to the crisis with an historical perspective. Dr. Mark R. Woodward,professor of religious studies at Arizona State University and Dr. Hermawan Sulistyo, researcher with the Indonesian Institute of Sciences and executive director of Research Institute for Democracy and Peace, jointly prepared the articles.

JAKARTA (JP): The New Order government came to power in the mid-1960s, when the Indonesian economy teetered on the brink of collapse.

With his policies of international adventurism and domestic revolutionary rhetoric and lack of regard for economic policy, Indonesia's first president, Sukarno, had led the country to a period of hyperinflation and enormous balance of payments deficits, domestic social and political conflicts and severe shortages of basic commodities.

Those who remember those fateful years speak of shops with empty shelves and villages filled with naked children because cloth was in such short supply that even those who could afford it had difficulty finding it.

During his lifetime term, Sukarno had failed in leading the country into a welfare state. He even spoke of Indonesia as "a coolie among nations and a nation of coolies".

Now, those days seem archaic. Indeed, for more than 30 years, the Soeharto government has been relentless in its pursuit of political stability and economic development.

The result seems to be a period of sustained economic growth and a very real improvement in the quality of life for the great masses of Indonesians, although it is now only a house of cards.

These gains have not come without cost. Elections are celebrated as "festivals of democracy" but are, by all accounts, less than fair and open. Political dissents and freedom of expression are tolerated, but within sometimes vaguely defined limits.

Many Indonesian and foreign analysts as well as ordinary Indonesians complain of collusion and corruption and of the growing economic gap between the BMW and Volvo-driving nouveau rich and the majority of the population.

For much of the past two decades, these inequalities have been tolerated, if not accepted because of the substantial improvements in the quality of life that the economic policies the New Order has provided.

People have grumbled about "high-ranking people" in Jakarta or "corrupt Chinese businesspeople" and have often speculated about who will be the next president, but on the whole, recognized that their lives have improved fundamentally.

The Asian economic crisis of 1997, which is still going on, combined with a series of natural disasters, including drought and widespread forest fires, a series of anti-Chinese and/or anti-Christian riots and the advanced age of Soeharto have rekindled old fears and suspicions.

Indonesia today is very much a nation in crisis. The crisis is more than economic. Far more is at stake than the value of the rupiah and the stock portfolios of Indonesian and foreign investors.

Indonesians, and particularly the Javanese majority, understand this crisis as being simultaneously political, economic and religious. Indonesian political thinking is deeply rooted in religious and mystical assumptions.

When the value of rupiah fell to 10,000 against the U.S. dollar on Jan. 10, a sense of panic gripped the capital. Middle- class consumers rushed to supermarkets buying basic commodities such as rice, sugar, milk and cooking oil in enormous quantities. The panic buying spread rapidly to traditional markets frequented by less-affluent Indonesians in other cities in Java, Sumatra and Sulawesi.

Since then, looting and riots have been on the increase. In subsequent weeks, there were more reports of angry crowds attacking store owners accused of raising prices and profiting unduly from the crisis.

The sense of panic was enhanced by the fact that it was happening during the Islamic fasting month of Ramadhan, a time when many Indonesians purchased larger than normal quantities of food and clothing in preparation for the Idul Fitri holiday at the end of January.

Some Western sources have expressed alarm that troops have been posted in front of supermarkets in some places. These troops served much the same purpose that the national guard would in a comparable emergency in the United States. In a normal situation, there are no shortages of rice, cooking oil or sugar.

Various estimates state that with the harvest season, there are sufficient rice reserves to last through April. Efforts to prevent speculation and hoarding by retail merchants has so far met with limited success.

The dominance of ethnic Chinese in the retail sector has led to increased ethnic tension, particularly in the smaller cities and towns of Central Java and East Java. When the riots broke out, it prompted some store owners to post signs reading Toko Islam (Islamic store).

The degree to which currency fluctuations effect the prices of basic commodities is clear. Prices that increased sharply contributed, perhaps more than anything else, to the outbreak of civil unrest. It is unlikely that the government will bow to international pressure in this area.

It is also clear that the middle class, which places considerable value on imported luxury goods, ranging from goods to BMWs, has seen its purchasing power eroded enormously, and that this sector of the economy, which includes, among other things, currently fashionable luxury apartments, has suffered severely and that it is unlikely to recover until the value of the dollar drops substantially.

One of the most alarming economic signs was the closing of gold shops because of unstable market conditions. Dealers apparently did not have sufficient confidence in the rupiah to sell their stocks and were unwilling to purchase gold at inflated prices.

This is significant because a great many Indonesians, rural as well as urban, do not trust banks and keep the majority of their savings in gold jewelry or bullion.

It has been reported that some shops had bought or pawned gold, but would not sell it. As was true for rice markets, it led to an increased ethnic tension, as most of the gold dealers in Java are Chinese.

Not being economists, we are not qualified even to speculate about the short- or long-term economic ramifications of these developments. There were, however, related developments that can not be explained adequately in economic terms.

The dollar and the rupiah are symbols as well as currencies. There have been numerous calls for collective action to save the rupiah by selling dollars even at a loss, popular songs about it, and even pleas to pray for it.

The Love the Rupiah movement is frequently reported in the press and in statements by government officials. As could be seen, this movement had no direct effect on the monetary situation and a little indirect effect by instilling a sense of national pride.

Soeharto's recent strong remark on the IMF reform programs has sparked anti-IMF and anti-American sentiments. A sentiment that even in January an editorial in the Semarang's daily paper Suara Merdeka compared the IMF and the Dutch East India Company. IMF officials were compared to the agents of the Dutch Company who imposed "political contracts" on 18th century Javanese monarchs. These contracts were a form of indirect colonial rule which ultimately lead to almost complete foreign domination of economic and political life.

Foreign (American, Japanese and Chinese) as well as domestic speculators have been blamed for the economic crisis. The government and almost all of its opponents have indicated that measures which would endanger the rural population and the urban poor are unacceptable.

The establishment has introduced labor intensive public works projects and other emergency programs to aid the newly unemployed.

Another indicator of the volatility of the situation was the sudden rebound of the rupiah, or as Indonesia puts it, the decline in value of the dollar, after Soeharto spoke on the phone with Clinton. Financial analysts might be inclined to attribute this to an American "vote of confidence" in the Indonesian government's commitment to economic reform, but more is at issue than monetary policy.

Window: Indonesians, and particularly the Javanese majority, understand this crisis as being simultaneously political, economic and religious. Indonesian political thinking is deeply rooted in religious and mystical assumptions.