Indonesia breaks for a jittery timeout. Coming months will be critical to nation’s economic recovery and future

The Washington Times, Feb. 2, 1998

JAKARTA, Indonesia - Millions of Indonesians were back in their home villages at the end of last week for the feast to mark the end of Ramadan, giving the country a nervous timeout before entering a critical two months that could make or break its future.

The annual Idul-Fitri break is traditionally the time when those who have "made it" in the city shower friends and relatives back in the village with presents, paid for in part with an annual bonus, required by law, equal to one month's pay.

The economic meltdown meant countless cash-starved employers couldn't pay the bonuses, and many workers chose not to make the trek home for fear that they would return to find they had no job.

But staying put may provide no protection.

"We didn't think it would be proper to lay people off before Idul-Fitri," said an executive with a large Indonesian conglomerate. "But if things do not change dramatically in the next few weeks, we will have no choice."

Some experts estimate as many as 8 million Indonesians could soon find themselves without work.

"It is a potentially explosive situation, which could easily get out of control," warned a Western diplomat, "especially when you remember that Java is the most densely populated island on earth."

"Social unrest could become a real possibility even under the current optimistic scenario in which major reforms are being undertaken," warned Omar Halim of Indonesia's Center for Strategic and International Studies.

Already, there have been sporadic reports of riots. Chinese shops in two towns on Java were burned in recent days. In other areas, indigenous Indonesian shop owners are writing "Muslim" on their store fronts in anticipation of more anti-Chinese violence.

Ethnic Chinese dominate the Indonesian economy and are a likely target of any backlash sparked by widespread unemployment. Upwards of 1 million Chinese and suspected Communists were massacred after an apparent coup attempt in 1965.

To prevent trouble, the government reiterated its ban on public celebrations of the Chinese New Year, which fell Thursday, in effect since the 1960s.

The rupiah, which has lost 80 percent of its value since June, rallied slightly last week after the government announced yet another set of economic reforms, including a badly needed restructuring of the banking sector. The fact that Indonesian financial institutions have long been used as personal piggy banks by their owners is one cause of the crisis.

So, too, is the secretive way in which the family-owned conglomerates, which dominate the Indonesian economy, have managed to mask their true financial positions.

Despite the wave of stock offerings promoted by Western brokerage firms in recent years and an avalanche of hefty loans from Western financial institutions, these companies rarely gave more than lip service to the term "transparency."

"Walk into a boardroom and tell these guys they have to communicate to the outside world their problems as well as their positives, and they look at you like you're from Mars," said an American corporate communications consultant.

As part of its new reform package, the Indonesian government last week announced a "voluntary" moratorium on repayment of the estimated $65 million in foreign loans owed by Indonesian corporations.

It was the global equivalent of a credit-card holder telling Visa he was "voluntarily" not going to pay his bill for a while.

At first glance, such an announcement might be expected to hurt the economy rather than help it. In this case, word of the freeze improved the exchange rate because it eased the frantic pressure to buy dollars at any price to make loan payments now coming due.

But that's likely to prove no more than a temporary glitch. With an aging and ailing president expected to be re-elected in March, no sign of a successor, inflation galloping out of control and employers about to unleash a blizzard of pink slips, Indonesia is entering a grim and dangerous time


Copyright Washington Times Library Feb 2, 1998

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