ECONOMICS: Indonesia's economic collapse
Far Eastern Economic Review
March 5, 1998

Indonesia:
 Playing With Ire:
 The puzzling origins of anti-Chinese riots in Java raise questions about
 whether they're being used to deflect pressure from the government --
 and onto the IMF
    By John McBeth in Kadipaten, West Java,
    * With Salil Tripathi in Jakarta
    1397 Words
03/05/98
p18    

On a grassy field in front of Lt.-Col. Harry Murdianto's headquarters,
soldiers supervise the sale of goods from the back of trucks under the
shade of soaring flamboyan trees. Sugar, cooking oil -- even that most
basic Indonesian necessity, the carton of cigarettes -- are going at
prices well below the market rate.
   The goods belong to the Indonesian-Chinese owners of four warehouses
in this West Java town. To placate townsfolk after three days of
intermittent rioting that have left a dozen Chinese-owned stores in
ruins, officials "persuaded" the owners to sell their stock at what Col.
Murdianto acknowledges is a loss. For the army, it's a typical "quick
fix" response to another instance of anti-Chinese unrest. What's much
harder to figure out, however, is why the rioting erupted at all.
 As with a spate of other incidents across Java, Sulawesi, Sumatra and
Nusa Tenggara in recent weeks, the most obvious explanation was that the
rising cost of living stoked popular anger at the Indonesian-Chinese who
dominate the economy. But many Kadipaten residents seem puzzled over the
real cause. Col. Murdianto and district chief of staff Lt.-Col. Muhammed
Doha aren't sure, either. "We don't know what caused it," admits Col.
Doha, brushing ash from his cigarette. There might be a reason apart
from prices, he adds, "but we don't know yet."
   Indeed, most of the ethnic Chinese the rioters have targeted have
lived in Kadipaten and other Javanese towns for generations. That, and
the strange circumstances under which mobs suddenly gather in a country
bereft of organization, have led to suspicions: Are protesters being
incited to deflect the blame for the crisis away from the government's
policies and onto the 3.5 million Indonesian-Chinese?
   Certainly, that would be playing with fire. But some analysts note
that heat might be useful. With the looming threat that massive unrest
over price hikes could destabilize Indonesia, President Suharto would be
in a stronger position to negotiate for an easing of the International
Monetary Fund's austerity measures. These analysts see the president's
controversial plan to peg the rupiah to the U.S. dollar in the same
light: an attempt by Suharto to strengthen his hand ahead of IMF
negotiations over slashing subsidies on fuel and other basic goods.
   "Suharto is essentially playing a game of poker and he realizes that
Indonesia, in a political sense, is far too important for other
countries to allow it to explode," says Rajeev Malik, a senior economist
with Jardine Fleming in Singapore. "The president has called the bluff
and the Fund -- and all of us -- will fall for it. The compromise will
be that Suharto stays away from the currency board and the IMF cuts some
slack" on price subsidies.
   There is no proof that the government has directly instigated any of
the dozens of riots that have hit Indonesia since the start of the year.
But Human Rights Watch, a New York-based non-governmental organization,
charges that it deserves at least some of the blame. In February, the
group accused senior government officials of fanning resentment among
the population -- in particular by failing to explain that high prices
and food shortages are not the fault of individual retailers. These same
officials, it added, have failed to state explicitly that the ethnic
Chinese are a valued and important part of Indonesian society.
   Diplomats, meanwhile, point to signs of rising anti-Chinese sentiment
in segments of Indonesia's powerful military. That criticism is echoed
by Human Rights Watch. In a report, it says former armed-forces
commander Gen. Feisal Tanjung, new army strategic-reserve chief Lt.-Gen.
Prabowo Subianto and the leader of the military's parliamentary faction,
Lt.-Gen. Syarwan Hamid, have incited racial tension with statements
hinting that "any shop-owner who refuses to sell at pre-crisis prices or
who closes his or her shop for fear of violence is deliberately making
goods scarce to keep prices high."
   During a February 9 meeting with the Indonesian Ulemas Council, a key
Islamic body, Suharto himself accused "certain business people" -- most
Indonesians take that to mean ethnic Chinese -- of triggering the crisis
through gambling and speculation. A day later, the council dutifully
declared a jihad against speculators and hoarders of staple commodities.
Such practices, it said, violate Islamic law.
   New armed-forces chief Gen. Wiranto and other prominent Indonesians
have expressed concern at the direction in which the violence appears to
be headed. In a Jakarta Post column on February 20, the director of the
Indonesian Society for Pesentran and Community Development, Masdar
Mas'udi, said he feared the latest string of attacks -- such as in
Kadipaten and the nearby towns of Jatiwangi, Losari and Brebes -- were
staged in response to the council's call.
   Not all rural Indonesians appear to support or understand the
anti-Chinese campaign, either. The sudden outbreak of violence has
frightened them into painting "Muslim," "Pribumi" (indigenous person) or
"Milik Islam" (Islamic owner) on their premises. A few doors down from a
police armoured car, parked incongruously next to a bus, one Kadipaten
shopkeeper wrote "100% pribumi" -- then added "wong cilik" (small
people) for good measure.
   Adi Sharifudin, 48, has worked for the Indonesian-Chinese owner of a
Kadipaten motorcycle business for eight years. Now he watches workmen
shovelling debris from the burned-out shop, where fire destroyed 48
bikes. He recalls how 300 rioters, many of them strangers, many in their
early teens, converged on the town's commercial centre from all
directions. "It was against the Chinese, but I don't know why," he says.
   Further to the north in Pamanukan, a bustling market town on the
highway between Jakarta and the coastal city of Cirebon, witnesses tell
of outsiders urging on the thousands of people who suddenly swarmed down
a sidestreet, burning furniture and food shops and a small cinema. "They
said it was for economic reasons," says Harjono, 38, whose mixed
stationery and drug store was looted. "But the prices in places owned by
pribumis have gone up even higher -- and they weren't touched."
   Some members of the Indonesian-Chinese community are convinced the
government is tolerating the anti-Chinese riots to allow the rural poor
to blow off steam. "It's a combination of factors that are contributing
to the problem," says the ethnic Chinese president-director of a bank
whose network of rural branches is still performing well, despite the
alleged anti-Chinese sentiment. "But I don't think you can call it real
social unrest."
   The risk of widespread social unrest is very real in Indonesia, which
has a history of spontaneous violent outbreaks. But in this corner of
West Java, where El Nino-delayed monsoon rains sweep across a landscape
rich in rice, tea and rubber, the riots seem to be breaking out in a
vacuum. A visitor here doesn't feel the kind of tension that could be
expected to surround a major eruption, like the bloodbath of 1964-65.
   Some analysts believe that President Suharto may use the threat of
another such eruption -- which would destabilize the region, and not
just Indonesia -- to negotiate IMF concessions. Those would likely
centre on the mandated removal of subsidies, particularly on fuel.
Ending the fuel subsidy, many fear, would raise transport costs-sparking
even more serious violent outbursts.
   Indeed, a new team of IMF officials was due in Jakarta in late
February to evaluate progress and discuss the critical issue of food and
fuel subsidies. It's going to be a difficult mission. The IMF is
frustrated over Indonesia's foot-dragging on reforms. Despite Jakarta's
agreement that monopolies should be dissolved, the well-connected
continue to look for new ways to keep their cartels alive. Suharto's
second son Hutomo Mandala Putra's much-ridiculed clove monopoly, set for
the guillotine, is exploring a way to continue -- like Suharto's golfing
partner Mohamad "Bob" Hasan's surviving plywood monopoly. "Countries
experiencing an economic crisis are not expected to fool around with the
medicine prescribed to them," says Jardine Fleming's Malik.
   The IMF needs to see results at a time when an irritated U.S.
Congress is poised to rule on whether to inject more cash into the Fund.
But at the same time, it has to deal with the emerging backlash in
Indonesia and abroad against its tough reforms. On a visit to Hong Kong,
Nobel laureate and economist Lawrence Klein said: "The IMF package for
Indonesia is justified and proper, but some re-evaluation is needed,
otherwise it will seem harsh." That's also the message Suharto has for
the IMF.