RI faces risk of revolution and depression: Economist
RI faces risk of revolution and depression: Economist
SYDNEY (AFP): Indonesia faces the risk of revolution as well as economic depression unless its financial crisis is corrected soon, one of the world's leading economic strategists warned yesterday.
United States economist David Hale, who advises a string of governments around the world, described the Asian economic crisis as "the most extraordinary example of international contagion" seen since the great depression of the 1930s.
He told the Australian Broadcasting Corporation (ABC) here that while there had been signs of stabilization in South Korea and Thailand, Indonesia was still very much in crisis.
"If this (crisis) continues we have the risk of not just economic depression but ethnic warfare and tribal warfare which could culminate in a revolution," he warned.
Harvard professor Jeffrey Sachs told the same program, ABC's 7.30 Report from New York, the crisis had been managed very poorly by the international community and blamed the International Monetary Fund for the extent of the financial meltdown in Indonesia.
"Three months ago the crisis was manageable," said Sachs, a former adviser to the Russian government, who is currently advising the Indonesian government.
"It has been very poorly managed, especially by the international community. Unfortunately, it's a lot more serious today than it had to be and I think Asia is in for a very difficult year.
"One of the first actions that the International Monetary Fund imposed on Indonesia in early November was a very thoughtless closure of a very significant number of banks," he told interviewer Kerry O'Brien from Boston.
"Now the IMF's internal analysis has acknowledged what should have been clear early on, that simply going in and closing down these banks led to a massive banking panic which has completely melted down the financial system."
He agreed with Hale that depression and deep social unrest were "a prospect", adding: "Again, the thing to understand about a financial panic is that it doesn't have to go this way.
"This is what happens when investors start to flee and the mere flight of the investors leads others to flee so that you end up with a situation that's vastly worse than the fundamental economic conditions would have justified."
Sachs said Indonesia's temporary freeze on foreign debt was "an act of desperation because things have gotten completely out of control".
"I hope that we are going to get some better support right now from Japan, from Singapore and from the private sector to work this thing out without Washington actually worsening the cause."
"The Indonesian situation is, as Jeffrey said, an unnecessary crisis," Hale added.
"The fact that the situation developed in Asia ... was because of the large amount of external leverage built up over the last half dozen years. Perceptions of vulnerability created self- fulfilling crises."
Political developments in Indonesia could create a better environment and perhaps the recovery of its currency, he said. "But the fact is a profound tragedy is happening that was totally unnecessary."
But a third internationally renowned economist, Japanese business consultant Kenichi Ohmae, took a more optimistic view, arguing the crisis in Asia is "a very small one compared to, say, the Mexican crisis".
"I have seen over the past 25 years some currencies go down to less than 1 percent of what it was and the fall of the currency exchange rate by about 30, 40, even 70 percent is not a very unnatural phenomenon."
He told O'Brien he could see no turnaround of Indonesia's economy unless it addressed the issue of "fundamental governance" in organization.
"On the other hand, I don't think it is going to be that bad because the real manufacturing economy and commodity competitiveness is there. Therefore, what I'm talking about is that the economy will fall to where it should be."