BY MAX LANE
The Indonesian economy is in a truly parlous state. The combined public and private foreign debt is US$150 billion, standing at 110% of GDP, and more than 40% of the government's revenues are devoted to interest payments on foreign debt. In addition, the government owes another staggering US$64 billion to several Indonesian banks. Many of these loans start to fall due this year.
The government, the International Monetary Fund and the World Bank all point to a 3% growth rate as proof that their recipe for Indonesia's economy is working. This growth is being driven purely by domestic consumption, which in turn is being financed by Indonesia's middle class spending its savings.
To attract savings during the crisis period after 1997, many banks offered up to 45% interest on savings accounts. Many middle class Indonesians who had done well out of the Suharto period quickly invested their money at these rates to try to compensate for the plunging exchange rate of the rupiah.
In recent years, the interest rate has dropped and a 20% income tax on interest dividends has been imposed. People are withdrawing and spending their savings. Most estimates assess that these savings will dry up during 2002.
In 1997, before the Asian financial crisis, Indonesia was receiving around US$33 billion in foreign investment. This collapsed to around US$13 billion in 2000. In 2001 it contracted another 50% down to US$6 billion. Domestic investment has also fallen, by about 60% since 2000. Monthly investment figures for the end of 2001 were 10% of what they were at the same time the previous year. Spokespersons for the textile manufacturers, the main growth area after the 1997 crisis, also confirm that they expect significant drops in output in 2002.
This year it is estimated that there will be a 10% — US$5 billion — drop in non-fuel (oil and gas) exports. Again there are no signs of any of the export sectors escaping this trend, especially given the global economic slowdown. For most international capitalist observers, the sale of state-owned assets seems to be the only hope for a desperate economy.
In a December 6 article entitled "Indonesia's Tottering Economy", the London Economist magazine observed: "With inflation already in double digits, and poised to increase because of a government pledge to raise fuel prices, the central bank is keeping interest rates high. Banks are in no mood to lend anyway, as they struggle to restore their balance sheets after the crisis of 1997. The government's financial straits put a fiscal stimulus out of the question. Foreign investment has evaporated — approvals in October were one-tenth the level of a year earlier. So privatisation, in addition to its budgetary virtues, is one of the few available means to inject new life into the economy. Time for foreign lenders to give the [cabinet] dream team a wake-up call?"
But the Indonesian government has not been able to sell any of these assets to date. Ex-Suharto cronies use their links and their capacity to bribe members of parliament to delay any sale of assets they previously owned. Many foreign investors are also suspicious that the asking price of the assets is far above their real value.
Deregulation of foreign trade, especially the reduction of tariffs and quotas, is also continuing to hit Indonesian agriculture. At the moment, 95% of tariffs in Indonesia have fallen to below 5%, the figure stipulated to be achieved for the ASEAN Free Trade Area. In rice and sugar, the lowering of tariffs has resulted in a big increase in both official and smuggled imports.
The World Bank, which tends to give the rosiest picture, states that 26% of Indonesia's population was below the poverty line in 1999. The World Bank figures mean about 55 million people are below the poverty line. NGO's estimate that the number living below the poverty line is more than 110 million.
Labour minister Jacob Nuwa Wea has admitted that unemployment numbers have reached 40 million. According to Nuwa Wea, there were three million people entering the work force every year. To absorb that number of workers, he said, the economy would need to grow by 7% per year, more than double the present rate.
With 100 million already below the poverty line, 40 million unemployed, rice farming being squeezed, no employment growth prospects as investment plunges, the Indonesian government is committed to deliver another blow to Indonesia's poor workers and peasants this month. Under IMF pressure, the government is intending to implement a 30% increase in kerosene prices, with fuel prices being raised even further. This comes after a 10% increase during 2001.
Electricity prices will also be increased by 24% during the course of 2002. This will have an enormous impact on living standards and could provoke outbreaks of social unrest if price rises are passed through quickly.
From Green Left Weekly, January 16, 2002.
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