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."