This article is about a month old, but is still worth attention if Indonesia is:
JAKARTA - The Indonesian economy, reeling from soaring inflation
and skyrocketing unemployment, appears headed for another dismal
year, sparking fears that a new round of bloody riots could erupt at any
time.
Adding to the gloomy outlook is the government's anemic budget, which
many analysts say is still too optimistic.
The economic crisis has forced companies to lay off millions of workers
and caused poverty to soar in the nation of 202 million. By the end of
1998, unemployment had risen from 13 million a year earlier to 20
million, or about one-fourth of the work force. The number of people
living below the poverty line soared from 27 million to 80 million.
"The number of unemployed will jump to between 29 million and 32
million," said Bomer Pasaribu, director of the Center for Labor and Development Studies, a Jakarta-based
private think-tank.
Analysts and politicians have warned that soaring unemployment and poverty is practically unavoidable
and will exacerbate political tension as there are almost no indications of economic growth in sight.
Ethnic Chinese are particularly worried about the prospect of renewed rioting and looting, of which they
were a primary target last year. Ethnic Chinese make up less than 5% of Indonesians, but their major
presence in the private sector has fueled resentment among the indigenous pribumi population. Some fear
the general election scheduled for June will heighten tensions in Indonesia and give rise to anti-Chinese
sentiment.
Election worries
"We are very scared the election will lead to bloody anti-Chinese riots, and many of us have already closed
down our businesses or will soon do so," an ethnic Chinese businessman said last week.
Indonesia's gross domestic product (GDP) shrank 13.6% year on year in the 1998 calendar year to 374.7
trillion rupiah ($47 billion), the State Statistics Agency reported. A report by the World Bank predicted
Indonesia's GDP would shrink 10-15% in the fiscal year ending March 31 and remain stagnant in fiscal
1999. The economy will resume growth in fiscal 2000, the World Bank predicted.
Businesses are troubled by the high interest rates the government has kept in place for more than a year.
The one-month deposit rate, for instance, hovers around 45% - impossibly high for some companies.
Investment is one of the biggest victims of the high interest rates. Investment projects approved by the
government in 1998 declined by more than 50% from a year earlier. Foreign investment plunged 60% to
about $13.2 billion last year, while domestic investment fell 51% to 59 trillion rupiah.
Tax incentives used by the government to attract foreign investment appear to be having little drawing
power. Seagate Technology Corp. of the U.S., a leading maker of computer hard-disk drives, canceled its
plan to build a production facility in Indonesia last year, opting instead for the Subic Bay freeport area
northwest of Manila in the Philippines.
"More investors will cancel their investment plans this year," said an official at the Indonesia Chamber of
Trade & Industry.
Also hurting the economy is the inability of exporters to take full advantage of the positive effects of the
rupiah's plunge against the dollar. The weakened currency provides an opportunity for nonoil exporters to
enjoy greater business; but many manufacturers must import materials before exporting finished goods,
and as many cannot afford to do so, they are unable to make their products. Letters of credit issued by
Indonesian banks are rejected by most overseas banks.
Nonoil exports in the January-October period last year decreased to $34.388 billion from $34.462 billion
in the same period the previous year.
"Many buyers have shifted their orders from Indonesia to other countries because they lack confidence that
we will survive amid the prolonged economic and political crises," said Djimanto, secretary-general of the
Indonesian Footwear Association.
Since the currency crisis hit in July 1997, the rupiah has plunged more than 80% against the dollar, to
around 8,000.
The country also faces mounting debts. Finance Minister Bambang Subianto told parliament recently
Indonesia's debt-service ratio, the proportion of debt service to export earnings, could reach almost 50%
this year.
"Exports are expected to reach $55 billion next year, while debt service will be $27 billion," he said.
Bank Indonesia, the central bank, said Indonesia's total external debt reached about $145 billion at the end
of 1998, compared with $131 billion a year earlier.
Undermining the government's fund-raising ability are low oil prices, which have plunged nearly 30% to
about $10 per barrel since the middle of last year. Oil exports accounted for about one-fourth of total
exports last year.
The steep fall in oil prices played a dominant role in the government's slashing of its budget for the next
fiscal year starting April 1. The draft budget unveiled by President B.J. Habibie last week totaled 218.3
trillion rupiah, 17.3% lower than the current budget.
Projected revenues from oil and gas exports were scaled back to 20.9 trillion rupiah from the current 49.7
trillion rupiah. The new budget uses an exchange rate of 7,500 rupiah to the dollar and prices oil at $10.5
per barrel.
"The inability of the government to boost its budget will worsen the economic situation, since we cannot
rely on the private sector to ease the crisis because the sector is still under strong pressure from the high
interest rates and huge debt," said Umar Juoro, chief economist at the Center for Information and
Development Studies, a Jakarta-based private think-tank.
Many economists regard the draft budget as too optimistic. The government expects income tax revenues
to jump 57.2% to 40.6 trillion rupiah in the next fiscal year. The government also expects to earn 29 trillion
rupiah by selling assets belonging to private banks that are either closed or nationalized, and from the
privatization of state-owned companies.
"I worry that if the revenues fall short of the target, the government will print money - and that will
certainly cause prices to soar," said Anggito Abimanyu, an economics instructor at Gajah Mada University
in Jogjakarta.
The government is predicting 17% inflation next fiscal year, much lower than last year's 77.6%. Many
analysts regard this forecast as unrealistic, particularly since the government will end subsidies for food,
medicine and fuel next year.
Price hikes are a major source of discontent in Indonesia. "Bring down prices!" was one of the most
commonly heard chants during the anti-government protests leading to the fall former President Suharto
and his predecessor, Sukarno.
Some leaders of Islamic organizations have warned that the riots could lead to a social revolution if the
country's competing top political leaders fail to work together.
"Brink of revolution"
"There is no doubt Indonesia is on the brink of a bloody revolution," said Abdurrahman Wahid, the
charismatic leader of the 30-million-member-strong Nahdatul Ulama, Indonesia's largest Muslim
organization.
Wahid said to prevent deep social rifts, a meeting must be held between Habibie, as a civilian
representative; General Wiranto, representing the armed forces; and Suharto, who still wields considerable
power.
"Frequent riots and mysterious killings of hundreds of Nahdatul Ulama members and supporters in East
Java Province last year were caused by political rivalries," Wahid said.
Habibie turned down the meeting. "Indonesia has constitutional bodies, such as the parliament and the
People's Consultative Assembly, that can be used to solve political problems," he said. |
