A Hungry Indonesia Edging Toward Chaos?

In the world of international big money, Indonesia used to be a star player. Especially in the early and mid-1990s, it was admired in money markets and board rooms for an economy that had been one of the most vigorous in Asia for three decades. The average annual growth rate ran at 7 percent. As eager foreign investors moved their money into Indonesian bonds, stocks, and real estate, the economy boomed.

But now that star economy lies in shambles, and Indonesia, with the world's fourth-largest population at 200 million, has gone virtually overnight from a world-class champion to a world-class invalid. Indeed, a recent World Bank report on the crisis in the nation says, "No country in recent history, let alone one the size of Indonesia, has ever suffered such a dramatic reversal of fortune."

The crisis started a year ago in July when the contagion of falling Asian currencies infected the country. The Indonesian rupiah tumbled into free fall and has since lost 80 percent of its value. Foreign investors and creditors have pulled out. Entrepreneurs have quit the scene. The stock exchange has lost much of its value, banks and major companies have foundered, and airlines are bankrupt.

Multitudes have been thrown out of work--20 million may be jobless by year's end. Inflation, which has soared past 50 percent, is heading toward 100 percent, and at least half of the population may slip below the poverty line this year.

The World Bank says the economy may contract by up to 15 percent. The budget this year is expected to post its biggest deficit ever. Making things worse is the fact that Indonesia is an oil-producing country in a world where oil prices have fallen 30 percent.

Moreover, the country's worst drought in 50 years has been hindering food production. Many harvests were wiped out last year, and the drought persists in some parts of the country.

The economic strains touched off months of political protests. Riots in May left more than 1,000 dead and did billions of dollars worth of damage. The disorders forced strongman Suharto to relinquish the presidency after 32 years of authoritarian rule. This political upheaval further alarmed investors.

Adding to the problem in rural areas is a breakdown in the country's food distribution networks as a result of attacks on Chinese merchants. The ethnic Chinese minority, though it forms less than 5 percent of the population, has been at the core of the country's commercial activity. The Chinese were thus made a scapegoat in the current crisis and were the main targets of looting, arson, assault, and gang rapes during the riots. The violence triggered the flight of tens of thousands of Chinese and other foreigners.

Although widespread starvation has not yet set in, relief workers and others fear that with the number of jobless, hungry Indonesians mounting, social chaos could erupt throughout the archipelago. The World Bank report says that the "real tragedy of the Indonesian crisis is its effects on the poor and vulnerable."

Even for those who still have jobs, wages are falling, prices are rising, and the already devalued rupiah is buying less and less. Many are hard pressed to pay for rice, cooking oil, sugar, milk, and other essentials. Nearly half the population is cutting back on meals and thus on adequate nutrition.

Already, mobs across Indonesia have begun looting shrimp ponds, rice mills, food warehouses, and cocoa, coffee, and palm oil plantations. Groups of farmers and workers have been taking over tracts of land they say were wrongly taken from them under Suharto. Near Bogor, south of Jakarta, several hundred peasants seized part of a ranch that belongs to Suharto and have begun to plant corn. In the same area, local people have occupied a golf course and started a market garden.

The World Bank warns that higher prices and less income could lead parents to pull their children out of school. Health care is also threatened. "The ill may risk their health and even death rather than face paying steeply higher bills for doctors, hospitals, and medicines," says the World Bank report. "Children and women, especially pregnant women, are most at risk."

Desperate for funds, Indonesia has worked out loan agreements with the International Monetary Fund (IMF) and other institutions. These bailout loans currently total $47 billion. In exchange for the loans, Indonesia has agreed to a schedule of rigorous economic reforms.

Foreign governments are providing food. International relief agencies are sending food and medicines. The World Bank, the Asian Development Bank, and Japan have pledged new loans.

The World Bank report urges the government to take three steps: (1) ensure that food and other essentials will be available at affordable prices, (2) set up public works projects to create jobs and incomes, and (3) make sure health, education, and other key social services keep operating.

The Bank says other Indonesian government priorities should be coping with debt problems, reviving the banking system, improving the system of government, and creating transparency in the country's financial and commercial dealings.

But hunger and desperation may be outpacing efforts at relief and reform. The most recent looting has further damaged confidence within the business and financial communities at a time when capital is desperately needed to create jobs.

The chiefs of the country's military and police have warned of tough measures against looters and have okayed the use of live ammunition when necessary. "I need to warn all people that looting cannot be tolerated, even if it is done to save oneself from starvation," Indonesia's defense minister and armed forces commander, General Wiranto, said recently. "Regardless of who owns the goods or the property, plunder cannot be condoned, even if the perpetrators are moved by an empty stomach."

July 30, 1998