Serious economic crisis
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