How to understand the crisis

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.