Serious economic crisis
What amazes me about Indonesia's present crisis is not that it has occurred, but that its magnitude and seriousness appear not to be fully appreciated. The collapse of the rupiah will inevitably lead to spiraling prices, mass unemployment and, therefore, widespread social unrest.
This happening in a cohesive, homogeneous, disciplined and developed country would be bad enough but here, it could lead to such a venting of anger and frustration by the people because of their acute feeling of powerlessness that complete havoc would result.
Have we been lulled into a false sense of security by the relative stability of the last three decades? Should we not look at what happened to Germany in 1923 and take heed? Germany became unstable and economically weak because of a balance of payments deficit resulting from a difficulty in finding markets for exports, extensive reparation obligations and hyperinflation fueled, inter alia, by the issue of more and more printed money. The German mark depreciated in value from an exchange rate of four marks to the U.S. dollar in 1914 to 160,000 in 1923. This economic collapse had a profound and indelible effect on the German people and when coupled with the Great Depression, set the scene for World War II.
However, it was the Dawes Plan which initially turned the German economy round; but not before agitators had exploited the anger of the populace and politicians had fomented discontent. The Dawes Plan provided American help in the form of foreign loans and it devised a new schedule for the payment of reparations, thus relieving pressure and restoring confidence in the economy.
Although the reasons for Indonesia's present crisis are not the same as Germany's in 1923, the effects could ultimately be very similar. Germany was unable to solve its problem alone in 1923 and it is nothing short of naive to expect Indonesia to do so (with a little help from its friends) in 1998. The equivalent of a Dawes Plan for Indonesia is an urgent necessity before social unrest further undermines investor confidence leading to an unremitting vicious circle with very grave consequences indeed.
FRANK RICHARDSON
Jakarta