Albion Monitor /News

Indonesia Unrest Growing Despite IMF Bailout

Compiled from Monitor wire services

Food hoarding could result in death penalty
JAKARTA -- The set of sweeping reforms that Indonesia signed with the International Monetary Fund (IMF) January 15 may be aimed at overhauling its weakened economy, but it is expected to do little to defuse the social tensions building up in recent months.

And as Indonesians worried about the future of their country and a dwindling supply of food, the country's police chief and armed forces commander Monday warned that the hoarding of staple foods could result in the death penalty, according to a report in the Indonesian Observer.

Gundreds of Indonesians marched some 60 miles to protest high food prices
The changes in Indonesia's economic policy, personally signed by President Suharto Thursday after talks with Fund officials, take aim at practices like monopolies, special treatment of pet projects of the political and economic elite, and spending on ambitious projects like building a national jet.

Many of the new policies run counter to the budget presented by Suharto earlier this month. But the government's decision after talks with the IMF to remove subsidies for fuel, for instance, may further erode the tumbling purchasing power of Indonesians and add fuel to simmering unrest.

Last week, riots in the main island of Java were triggered by increases in the prices of goods following the recent 70 percent drop in the value of the rupiah.

In East Java, hundreds of Indonesians marched some 60 miles to protest high food prices, and damaged a shop and one vehicle before police brought them under control, an Agence France-Presse report said Tuesday.

Supplies of rice, sugar, instant noodles, cooking oil and other basic foods are in short supply on market shelves since nervous shoppers began hoarding in earnest amid fears of big price increases.

National police chief Dibyo Widodo said hoarding could be considered subversive activity, a crime which carries the death penalty.

Armed Forces Commander General Feisal Tanjung was not as specific, but said security forces will take "tough measures" against those stockpiling food and other basic commodities.

Most analysts agreed that 1998 is going to be far worse than 1997 was
Frans Seda, an economic analyst and former finance minister, says among major tasks facing the government now is to handle the social fallout of the reforms, demanded by IMF officials in exchange for the $43 billion bailout of the Indonesian economy.

"We should know think how to deal with socio-political effects from this reform," Seda said, adding that the grassroots would be the most affected by them. "With zero growth, targeted inflation rate at 20 percent and the lifting of the subsidy for oil, the people will carry a heavy burden."

The projection of zero growth for 1998 -- which revised the earlier optimistic assumption of 4 percent in the budget -- means no new economic activities. This, in turn, means that the 2.8 million people joining the workforce this year cannot all be absorbed.

This will aggravate unemployment problems in an economy whose number of jobless people is already expected to jump by up to 50 percent, to 6.5 million people. Hundreds of thousands of Indonesians are also expected to be repatriated from Malaysia soon.

Officials estimate that one million workers lost their jobs at the end of 1997.

But an association of contruction firms estimated that between three and four million construction workers had already lost their jobs by the end of December. Garment factories are likely to dismiss another four million. The crippled financial sector? Real estate? Manufacturing? The answer to those questions sends shivers down the long curving spine of this archipelago nation of 13,600 islands and 204 million people.

One respected labor analyst estimated that between 15 and 18 million of Indonesia's 90 million working people are likely to lose their jobs soon. And most analysts agreed that 1998 is going to be far worse than 1997 was.

Living conditions, improved after a quarter century of struggle that saw per capita income rise from $90 a year to $1,000, are likely to suddenly gorw worse. Prices, especially of staple items such as rice, sugar, cooking oil, instant noodles and milk, on the other hands, have increased significantly with the dramatic fall of the rupiah.

Subsidy of critical transportation, fuel costs lifted at end of month
But to many Indonesians, among the most shocking items covered by the letter of intent to the IMF was the government's commitment to eliminate 10 trillion rupiah subsidy for gas and oil products.

The IMF views subsidies for basic terms like fuel and food staples as inefficiencies that clash with free-market principles and sap government resources. But Indonesians have long been used to this assistance from the government.

Subsidies are politically sensitive items that Jakarta had, until forced to under IMF pressure, been loathe to dismantle.

"The lifting of subsidy for oil is usually followed by rising public transport fares and other basic needs, which pose no problem for the rich," said Hidayat, a property businessman. "The IMF should have understood this," he added.

In a rare press conference after the signing rites with IMF Managing Director Michel Camdessus, Suharto acknowledged: "The IMF sees the present budget as too ambitious. I can accept that. But the problem is, we have our own yardsticks which are different with theirs."

Suharto maintained the government had plans of its own to lift the subsidies anyway: "The problem is the timing. When the draft budget is outlined, we are being hit by currency crisis. We were also facing Christmas, New Year and Ramadan."

"It was the time common people need a lot of things to buy. And now, we are facing Idul Fitr (the end of the Ramadan fast)," he added.

"We are facing Idul Fitr, when basic needs become more vital. If the prices are out of control, don't you think people will run amok?" said Faisal, director of Indef, a Jakarta-based NGO on social development.

Under the free-trade demands of the aid package, Indonesia's agricultural monopoly, Bulog, will lose its monopoly in two weeks. Only rice will remain under Bulog's watch.

Sri Mulyani, vice chairperson of the Economic Research Center of University of Indonesia, said the ending of a government monopoly should not be replaced by the domination of a private company. "We all are pro-trade liberalization. But when it comes to the interest of largest part of the people, there should be an exception," she maintained.

"There is not even any milk for our children"
Some are suspicious of the $43 billion aid package from the IMF, claiming the U.S.-dominated bank is working for the West to weaken Asian economies so that the U.S. can have more power. Twice last week, student groups protested in Jakarta carrying signs with anti-President Suharto and anti-IMF slogans, .

But many Indonesians say they have little choice but to hope that the tough package of reforms restores international confidence in the economy.

After all, observers point out that without IMF pressure and its rescue package, major and hasty reforms such as the dismantling of the clove monopoly, lifting of subsidies for the national car and plane projects would have been inconceivable.

The clove-trading monopoly was awarded to Tommy Suharto, the president's son, in 1991. He also runs the national car project, which got special tax breaks from the government. Special support for the state-owned factory developing a national plane is to be stopped immediately.

One money changer here noted that there was no major rebound in the rupiah, because some people think the reform package aims for too much and may thus be difficult to carry out.

Meanwhile, the suffering has just begun.

"The price of rice has soared to 4,000 rupiah per kilogram. I cannot possibly afford to buy more than two kilograms. I don't have that much money," wailed a housewife as she joined dozens of women yelling at Jakarta Governor Sutiyoso in the Jatinegara market last Friday.

"Where's the sugar and flour, sir? There is not even any milk for our children," cried the women in front of the bewildered Sutiyoso, who immediately ordered his men to supply the market.

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Albion Monitor January 19, 1998 (

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