Indonesia’s Rich and Poor Bound by Crisis

Even though Monday was Buddha’s Day of Enlightenment, a holiday here, Ahmad Tawil was on the streets with his pushcart, shouting “Cakes! Cakes!” and hoping to sell enough 10-cent pastries to turn a modest profit by day’s end.

He came to the capital eight years ago, leaving his family on his small rice farm, and even if his little business goes belly up, he figures he can always return to the countryside and the family will survive. After all, he said, they have always known poverty.

“I don’t care about politics, just the increases in prices. That’s all I worry about,” he said.

Like most Indonesians, Tawil has not yet felt the full sting of last week’s rise in the cost of gasoline, kerosene, electricity and bus fares. But like every Indonesian, he is adjusting his lifestyle to cope with the country’s economic crisis.

He no longer buys beer and he makes smaller cakes to save on flour. Mothers have cut back on milk for their children, and jobless workers walk among lanes of traffic, selling old books and toys. Street crime has increased. All but the wealthy are uneasy about spending their rupiah for anything other than essentials and too nervous about the state of the economy to tuck any extra rupiah into a savings account.

Some banks are offering, on a per annum basis, 62% interest on 30-day certificates of deposit--and finding almost no takers. That might not be surprising considering that 80% of the 300 companies listed on the nation’s stock exchange are technically bankrupt and only five of them have shares selling at more than $1.

People have stopped paying their debts, and production has ground to a halt in factories, leaving Indonesia for now to live off existing inventories. At Rumah Sakit Hospital, a doctor said the cash crunch has left the facility with less than adequate supplies of medicine and plasma.

The wealthy, not wanting to be identified as such if civil unrest becomes widespread, have started leaving their luxury cars at home.

And civil servants, not wanting to be seen as part of the government that looted and mismanaged the treasury, have started changing out of their khaki uniforms at work and wearing civilian clothes on the commute home. “This is not a time to advertise that you work for the government,” one said.

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A merchant in the Monday Market, who identifies herself only as Alwe, has been selling wool and twine at her family-owned shop since 1960. Business is off 50% from last year, she said, but things are not yet desperate. Behind her hung a large portrait of President Suharto. Asked her opinion of him, she only rolled her eyes.

The irony in the continuing economic downturn and increased civil unrest is that Indonesia finally had something to feel good about.

The International Monetary Fund last week approved the release of a further $7 billion to cash-strapped Indonesia, and IMF chief Michel Camdessus heaped lavish praise on Suharto’s economic team for picking up the pace of reform.

But as the government announced it was spending $11 billion to bail out failing banks, it cut $1.6 billion in subsidies to the poor. Overnight, gasoline prices jumped 71% (to about 60 cents a gallon), kerosene that the poor use for cooking rose 25%, and electricity increased 20%. The increases sparked intensified student protests and a riot in Medan, Indonesia’s third-largest city.

“We warned the world and the IMF,” Foreign Minister Ali Abdullah Alatas said Friday, “of the scenes you are now seeing, namely that if one removes subsidies--certain protective mechanisms which have been in operation for years--there will be social shock, perhaps strife.”

In the normally docile legislature, members held a spirited debate, asking Suharto to rescind--or least review--the subsidy cuts.

All this leaves Suharto, 76, who is in Egypt on an official trip, in a quandary.

For 32 years, he has focused on economic development while stifling political development. Now, Indonesians are using the economy Suharto so nurtured as the catalyst for the political change that he finds such an affront.

But by making Indonesia part of the global economy, Suharto no longer has a free hand to deal with the crisis.

Should he backtrack on economic reforms or turn his security forces loose on demonstrators, the very people he needs to survive--international investors and donors--could simply walk away.

Suharto, addressing the opening session of a summit of 16 developing nations, noted that the crisis in his country has been “devastating.” But news agencies quoted him as insisting that his country had no choice but to follow the IMF regime and warned that his people will have to make “painful sacrifices and summon our reserves of endurance and social discipline.”