With the rupiah plunging to 16,750 to the US dollar last week and prices jumping, sometimes twice a day, the political and social consequences of the currency crisis in Indonesia are starting to be felt. Green Left Weekly spoke to MAX LANE, coordinator of Action in Solidarity with Indonesia and East Timor and Democratic Socialist foreign affairs spokesperson about the impact of the IMF-imposed austerity package on ordinary Indonesians.
Most people in Jakarta report there is a kind of eerie quiet. Prices of most basic commodities have been going up from between 20-60%, depending on the commodity. Lay-offs have been more or less restricted to the construction industry. It is clear the regime is doing everything it can to ensure there is no price explosion and no move into hyper-inflation in the middle of the Moslem fasting month.
Question: How is the regime trying to do this?
A lot of pressure is being put onto businesses not to raise prices. This is being done by the regime talking to business directly, but also through the "I love rupiah" media campaign which is calling on people to rally behind the economy as a kind of patriotic duty. But it is more fear of being blamed for the next big drop in the rupiah that is influencing business to limit price rises.
Question: But surely with the rupiah losing 75% of its value, the cost of imported goods must be outrageously high for most businesses?
Absolutely. There are many reports that wholesalers of consumer goods are running out of stock and do not have the money to buy more. There are strong rumours that two of the three main supermarket chains have stopped paying their bills. When their stock runs out, they will probably have to close.
Factories are low on imported raw materials. Some factories can't even get locally produced raw materials, like palm oil, because the plantations are hoarding such things to sell on the international market later on. They want to sell it for dollars rather than for a free-falling rupiah. Under new IMF-enforced deregulation they will be able to do this, ignoring the needs of the local market. Inflationary pressure is building up under the lid the government has imposed during the fasting month. But the lid must come off some time.
Question: Can the government keep this up, even until January 30 when the Lebaran celebrations end?
Who knows? They are helped a bit by the fact that much of the retail sector is owned by Indonesians of Chinese descent. In a situation like this, Indonesian Chinese always fear agitation by right-wing Moslem groups who use the Chinese as scapegoats for problems. Many Indonesian Chinese won't raise prices or close their shops, especially in the fasting month, for fear they will become targets of right-wing Moslem agitation. But they cannot go on selling their stock at a loss for ever.
Question: What about unemployment? Have lay-offs started yet?
Lay-offs in the construction sector started almost immediately the rupiah started to fall last year. At least 2.5 million casual day labourers have been without work for several weeks now. The dictatorship is offering a 70% discount on one-way rail fares out of Jakarta to try to get these people back to their villages and out of the hothouse atmosphere of Jakarta.
There have also been some attempts to provide jobs in local government activities. Construction lay-offs have also been widely reported in the provincial city newspapers.
So far, lay-offs in manufacturing have been kept down. Employers are too scared of riots and attacks on the factories if they did this during the fasting month. There are usually many militant strikes, even in normal times, when employers are late paying the fasting month bonus of a month's wages. If lay-offs happened now, the whole of Jakarta would go up in flames.
But when raw materials run out, the factories will have to close. Then the lay-offs will not be able to be postponed.
Question: Surely the regime must be trying to do something about this?
It has appealed to Japan and Germany for help in bailing out private sector companies. Both the Japanese and German governments have said they will help with loans. But the several hundred million dollars on offer will not be enough.
The reality is that the Indonesian economy is going to shrink. Official growth rate estimates are now 0% and non-government economists are predicting a growth rate of minus 3%.
Contraction of the economy is the order of the day. This is the result of the international economic situation, of massive over-capacity in output compared to the available markets. Such is the madness of capitalism. Hundreds of millions of people are in want, in the First and Third worlds, and the international capitalist economic police, the IMF, say the economy must be contracted!
Question: So how are the people reacting?
From all reports, there's an eerie feeling of being in the calm before the storm. There is massive confusion as to what is happening. Nobody could believe that the rupiah could fall to 16,750 per US dollar as it did on January 22.
There have been quite a few protest actions, although still small scale. At least three protests took place at the parliament between January 20 and January 24, and there have been small actions outside a number of banks and some retailers in Jakarta. There have also been small riots in some east Javanese cities against price rises, and attacks on shops. But the full brunt of the economic crisis hasn't quite hit people yet. This is more likely after January 30.
Question: Because it is the end of the fasting month?
Yes, and shops will test out raising their prices. But also because some other new policies will be implemented. Electricity prices will rise 6% for a start. It has been announced that the first cut in the fuel subsidy will be in April, after the rubber-stamp parliament meets to appoint Suharto. But there will be an inflationary impact as merchants prepare themselves for the big increase in transport costs. By February or March, many shops and factories will be running out of stock.
Question: What about the presidential appointment. What is the situation now?
Suharto has accepted the ruling Golkar party's nomination. The puppet Indonesian Democratic Party (PDI) has said it will support him and so has the Moslem United Development Party. It is clear that the military, currently dominated by officers loyal to Suharto who are also represented in the parliament, will support him.
There is still some uncertainty over who Suharto will indicate is his preferred vice-presidential candidate. This has become a sensitive issue as there is a common view that the vice-president may end up as Suharto's successor, although that is by no means certain.
Question: Will Jakarta remain calm in the lead up to the parliamentary session to appoint Suharto?
I don't know. There are an increasing number of groups either publicly calling for Suharto to be replaced or stating their support for people such in Megawati Sukarnoputri and Amine Rais from the Muhammidiyah, the middle-class Moslem welfare organisation. It is not yet clear whether this will galvanise into a larger mass showing of support on the streets.
In the meantime, the regime and the military are very concerned that the radical underground, mainly the People's Democratic Party (PRD), may try to organise mass actions and other protests.
The military have threatened to "cut to pieces" anybody trying to disturb the atmosphere in the run up to the election. They know the PRD has developed a strong base in the worker and urban poor areas, and more than 14,000 extra police have been mobilised into these areas.
Extra military personnel have been stationed in and around densely populated multi-story slum buildings, places suspected of being used as safe houses and organising centres.
And from about two weeks ago, the regime has begun a propaganda campaign against the National Democracy Struggle Committee (KNPD), accusing it of being a PRD front group. This campaign heightened after a KNPD press conference calling for a new, broad anti-dictatorship coalition was attended, not only by the KNPD chairperson, Nur Hikmah, but also by the more radical leaders from the Megawati PDI mass base.