INDONESIA: Economy Flounders, But No Quick Help from IMF

By IPS Correspondents Reprint | | Print |

Kafil Yamin

JAKARTA, May 27 1998 (IPS) - A semblance of normalcy seems to have returned to the streets of the Indonesian capital, where fatigue- clad soldiers are retreating and commuters are once again jostling for public transport.

But the resumption of routines after President Suharto’s fall from power last week has not changed the fact that Indonesia’s battered economy is fast headed toward total collapse.

In fact, the economy is in worse shape than it has ever been since Asia’s economic crisis struck last year.

Inflation is predicted to hit 80 percent this year, foreign reserves are perilously low and the riots that occurred just before Suharto stepped down have triggered massive capital flight, especially by the ethnic Chinese.

Local economists say this is time Indonesia most needs help from institutions like the International Monetary Fund (IMF). But soon after the arrival here of IMF director for Asia-Pacific Hubert Neiss, no such commitments were as yet forthcoming.

On Tuesday evening, Neiss talked about conditions that needed to be in place before the IMF resumed releasing funds part of a 43 billion U.S. dollar bail-out package for Indonesia. “What Indonesia needs to do now is to create political stability and speed up reform,” he said.

Already, perceptions that the Fund is twiddling its thumbs while Indonesia’s social fabric tears is fueling calls for quicker action both by the government of President Bacharuddin Jusuf Habibie and the IMF.

In some circles, a backlash against the Fund for taking a wait- and-see attitude may be starting to form, not least because IMF conditions like the lifting of price subsidies had contributed to riots and unrest in recent months.

Some observers say they view Neiss more as a “judge” of Indonesia’s situation rather than a representative of an institution aiming supposedly to help a nation in misery.

Criticising politicians and pro-reformation figures, economist Faisal Basri said there was no time to lose, lest food shortages and economic hardship once again spill over into protests.

“We all are committed to reformation, immediate elections, change of political regulations and whatsoever, but this alarming food crisis deserves immediate attention and concrete action,” he argued.

With the contraction in the economy estimated at 20 percent this year and the number of unemployed possibly approaching 100 million in a country of 200 million, there is no time for decision-makers to engage in trivial debate, Basri said. “So many things are at stake.”

For the average Indonesian, daily life has become a struggle to find, much less afford, basic essential items like food.

Susilowati, a 47-year-old housewife, has been shuttling from one market to another looking for two kilogrammes of soybeans and one kilogramme of cooking oil. After searching for five hours, she found some supplies 40 km away, at the capital’s outskirts.

“It’s been really hard times these days,” she said. “The vendors are there, but with only a few food items. Within three hours they would have been sold out.”

Two days earlier, she and six housewives in the neighborhood could not even find rice to buy. In the end, she asked relatives in Bandung, a city east of Jakarta, to send her two bags of rice.

Food scarcity is just one of the effects of riots, looting and arson seen here earlier this month. Destruction was heavy in areas where Indonesians of Chinese descent stayed, sparking the exodus of ethnic Chinese merchants who feared racial violence.

Chinese Indonesians make up almost 97 percent of food suppliers in Jakarta and other cities. Severe food scarcity has also hit Medan, the capital of North Sumatra, where looting of ethnic Chinese-run shops had also flared.

Without these merchants, supplies were disrupted and distribution system cut in many parts of Indonesia. And if food items are to be found, their prices have soared four to five fold.

In an attempt to calm the fears of the ethnic Chinese community and to try to ease instability, Habibie visited the areas worst- hit by riots on Thursday.

At the peak of unrest last week, the price of beef rose by more than four times the previous levels. Vegetable prices vary from day to day. The price of rice, the staple food, fluctuates less but supplies are hard to find.

Coordinating Minister for Economy and Industry Ginanjar Kartasasmita has said that Indonesia needs to imports at least three million tonnes of rice, 4 million tons of soybean, 2.5 tons of wheat flour and a large amount of medicines.

And though Indonesia is the world’s largest producer of cooking oil, it now needs to import a large amount of the commodity due to disrupted supply and distribution systems at home.

For Susilowati, wife of a high-ranking government official, “high prices are still better as long as there is stuff to buy”. But other low-income families are looking to the future as they would doomsday — and the government’s ongoing talks with the IMF have provided little immediate hope.

“Habibie’s government should be able to curb inflation, strengthen the rupiah and restore confidence of foreign investors,” Neiss said, without saying when the Fund would disburse the next one-billion dollar tranche of aid.

Prabhakar Narvekar, special adviser to the IMF, said in Switzerland on Tuesday that the timing of further release of funds to Indonesia would depend on the country’s political situation.

One economist said Indonesia badly needs “a lot of capital” fast, citing estimates that usable foreign reserves were down to just 7 billion dollars. But creditors and investors are waiting for political turmoil to settle and see how Habibie does.

Meantime, Indonesia welcomes whatever help its neighbours can give. Japan has pledged a donation of 500,000 tonnes of rice in early June. Taiwan is set to negotiate with Indonesia on the terms of payment for a 200,000-tonne shipment of rice.

Jakarta is scrounging around for other resources. Food and horticulture minister A M Saefuddin said the government would use funds raised from state firms’ floating of shares, originally meant to service of foreign debt, to buy food instead.

“So temporarily, the foreign debt repayment will be postponed,” he said.