New Hopes for Future Only Fuel Indonesia’s Instability
In an era of electronic bank transfers and ATMs, Ari Komarrudin trusts neither machine nor man. The young Indonesian is pulling his life savings out of this nation’s largest bank and finding a safe place for it at home.
In the chaotic world that is the Indonesian economy, the 27-year-old flight attendant is not sure what the future holds for Bank Central Asia, which was taken over by the government last week after anxious customers depleted the institution’s coffers in a matter of days. But he wants his $500 close enough that he can touch it.
“I’m a stranger in a strange land,” he said, struggling for words to describe his confusing predicament.
For Americans who came of age during a time when the U.S. dollar was king and Western-style capitalism ruled the global marketplace, it is difficult to comprehend the confusion and wrenching devastation that have followed Indonesia’s precipitous fall from grace.
In less than a year, this giant Southeast Asian archipelago has metamorphosed from one of the financial world’s darlings to an economic basket case, a process that has led to an 80% drop in the value of its currency, the rupiah, a 40% climb in the prices of basic foods and a paralysis of commerce that has toppled even the best-run companies.
A country that had graduated into the middle tier of the developing world is now back among the poorest, with a per capita income equivalent to those of its neighbors Vietnam, Cambodia and Laos.
One Western banker compared the result to “dropping a 1920s-style recession on an America of the 1950s.”
It is this financial chaos that eventually drove former President Suharto from office May 21, bringing an unexpected and, many believe, long overdue end to a 32-year rule marked by a dramatic expansion of the overall economy and by the obscene enrichment of a few.
Businesspeople Are Among the Stymied
But while Suharto’s resignation and the promised introduction of democracy have given voice to a new set of long-repressed political and economic players, they have also injected even more instability into an economy desperately in need of strong guidance.
From Jakarta’s boardrooms to its bedrooms, the continuing uncertainty is causing widespread confusion as even the most knowledgeable people despair of being able to protect what’s left of their country, their companies and their fast-declining personal wealth.
“Right now, businesspeople can’t make plans. I don’t even know what to do,” said Mari Pangestu, executive director of the Center for Strategic and International Studies and one of the country’s leading economists. “Should I be putting my money back in the bank? Should I put it somewhere else? The environment is still so unpredictable.”
The uncertainty is both political and economic. The promise of elections in 1999 by the new president, B. J. Habibie, hardly ensures that he will lead until then--rumors of a military coup haunt him. And officials of the International Monetary Fund left Jakarta on Saturday without giving any sign of when a promised $1-billion infusion might be forthcoming.
Hubert Neiss, the IMF’s chief Asia official, said only that the agency was prepared to “do its best” to help the Indonesian government stop the fiscal hemorrhaging by providing technical assistance and financing.
Neiss, who is slated to report back to the IMF board this week, said the agency will need to adjust the terms of its $43-billion support package to reflect Indonesia’s rapidly deteriorating economic state. While acknowledging that “every week’s delay” makes the problems more difficult to fix, he said he could not commit to a date for the disbursement of the agency’s next $1 billion. Funds from the World Bank and the Asian Development Bank are also hanging in the balance.
Economic Indicators Governed by Rumor
Meanwhile, conventional economic wisdom no longer applies. Essential indicators of economic health, such as the value of the rupiah and the share prices of the 288 firms listed on the Jakarta Stock Exchange, are governed by rumor more than fact. Most companies are in effect bankrupt, though many of them are still operating on borrowed time.
After riots left parts of Jakarta a charred ruin two weeks ago, frightened Indonesians started leaving their expensive jewelry and cars at home, locking their taxi doors and avoiding travel after dark.
Flights into Jakarta, once packed with foreign businesspeople, are empty. Four-star hotels here feel like buildings in a ghost town--even though their rates are equivalent to that of a Holiday Inn in Los Angeles and a meal with wine in the swankiest restaurants can be had for $5.
Since the riots, the phones at the offices of Jim Castle, a prominent U.S. business consultant and vice president of the American Chamber of Commerce here, have stopped ringing. Even before the unrest, business was at its lowest level since he opened his doors two decades ago.
“Until you see some political certainty, very few foreigners are going to come to Indonesia,” he said.
Potential Market for Numerous Products
Over the long term, Indonesia seems sure to be a very good market for everything from electrical power to Pampers, since it is the world’s fourth most-populous country and is rich in oil and gas, minerals and fertile agricultural land.
Prior to last fall’s currency crash, the economy was enjoying an 8% growth rate, although economists are now predicting a contraction of at least 15% this year.
Indonesia’s middle class, which represented 10% to 20% of its 202 million people, has seen its buying power evaporate.
The salaries of middle managers, who earned as much as their counterparts in Australia before last summer, have plummeted from an average of $3,000 a month to $700.
And those are the lucky ones. By the end of this year, at least 15 million additional Indonesians are expected to be unemployed, in a country without any significant jobless benefits or retraining programs.
“I had confidence in Indonesia, so I agreed to be paid in rupiah,” said one Western executive managing an Indonesian firm. “Before I was living like a king, earning $250,000 a year. Now I make less than a shoe salesman.”
He predicted that his company, which is being kept alive by monthly infusions of $3 million to $5 million, can survive only one more quarter.
Business plans are of little use, because the economic ground shifts by the minute.
Entrepreneur’s Cash Cow Stops Yielding
During Indonesia’s boom years, Medrial Alamsyah left his job with a foreign firm and started his own advertising and consulting firm. His cash cow was selling advertising space on the back of airline tickets.
After the rupiah began its downward plunge, cash-strapped companies began cutting their advertising budgets. His client list was reduced by half, and his printing costs fluctuated wildly as the price of imported paper and ink shot up.
“I couldn’t even make a deal, because I didn’t know how much the tickets would cost when they were delivered,” he said. “Today, it might be 10 rupiah per ticket, tomorrow 15 or 20.”
To keep his company afloat, Medrial began selling coffee mugs. He switched from paying salaries to paying commissions on sales and still had to slash his work force from 50 employees to 30.
Medrial, one of a group of young Indonesian professionals who supported the student protests that helped topple Suharto, remains convinced that his country’s size and the talents of its people bode well for the future.
The problem, of course, will be getting from here to there.
Medrial and his wife, a lecturer at the University of Bogor, have cut out all unnecessary expenses. Their four children--ages 18 months to 7 years--are no longer able to indulge in their favorite outing, a trip to McDonald’s. The family won’t be making any large purchases, such as a car or new appliances, for years.
“In the near future, in the next few weeks, I don’t know what’s going to happen,” he said.
Wealthy Who Fled Still Wary of Return
To restore the middle class, it will be essential to persuade foreigners and Indonesia’s wealthy to bring their capital back into the country.
But many of its wealthiest citizens--largely ethnic Chinese who dominate the economy, despite their small numbers--are too frightened to return to Indonesia because the political turmoil has lifted the lid on racial tensions that have smoldered for decades in this predominantly Muslim country.
During the recent riots, companies owned by ethnic Chinese were targeted for burning and looting. Many of their owners fled with their money to havens in Singapore, Hong Kong and Australia, and they are still debating whether it would be safe to come home--particularly for those who cultivated close ties with Suharto.
On Saturday, Ginandjar Kartasasmita, Indonesia’s chief economics minister, called the attacks on the ethnic Chinese a “tragedy” but said the Indonesian government is too poor to provide financial aid to those who suffered in the riots.
“Usually, the Indonesians of Chinese descent can overcome these problems themselves,” he said. “They just need our assurance that they will be guaranteed their safety and security and they will be treated like Indonesians.”
But Ginandjar’s words were of little comfort in Jakarta’s Chinatowns, where residents still wonder why the rest of the world hasn’t put more pressure on the Indonesian government to punish those who over the years have turned their frustration and resentment against the ethnic Chinese.
“The U.S. government is critical of the Indonesian government for its treatment of the people of East Timor,” one angry Chinese factory owner said. “What about the thousands of Chinese whose human rights were violated, who lost their businesses and their homes and were physically attacked?”