They left like thieves in the night. Officials from the IMF fled Jakarta on a specially chartered plane the day the rioting started. Their legacy was growing unemployment, food shortages and price rises.
Although western leaders have been at pains to stress that the problems of the Indonesian economy are the fault of the Indonesian government, the west must shoulder much of the blame. The IMF package was introduced last year and was worked out between Suharto and finance ministers from the major capitalist governments. In return for $43 billion the Indonesian government agreed to implement 'structural changes' to the Indonesian economy in line with the IMF's wishes. Yet instead of stabilising an economy that was rapidly sliding into recession, the IMF package has made things considerably worse. As the bosses' paper The Wall Street Journal put it, 'Last autumn, Indonesia turned to the International Monetary Fund as an economic lifesaver. Instead the IMF programme contributed to the turmoil now wracking the country.'
The IMF package made no attempt to claw back any of the wealth Suharto and his family had accumulated over many years. The US magazine Forbes last year placed Suharto third in its 'king or tyrant' category with an estimated fortune worth some $16 billion and the whole family $46 billion some $3 billion more than the total rescue package. Instead the IMF 'solution' included food and fuel rises, cuts in state subsidies to the poor and cuts in other areas of social spending. It was when Suharto announced price rises in fuel of 70 percent that people began to take to the streets. Earlier this year the IMF also demanded that the Indonesian government closed 16 of the most troubled banks. This was intended to show that the government was dealing with the problems in the financial sector. Instead it backfired as international investors pulled money out of other banks, further weakening the system.
Now the IMF package is in tatters. At the beginning of June it will decide if it wants to give the Indonesian government the next instalment of its 'rescue' package $1 billion which, once again, will have strings attached. The Indonesian economy is in free fall. Output has continued to fall since the beginning of the year. The IMF's own forecast was for a fall in gross domestic product of 5 percent for 1998. But virtually every day this is being revised estimates now put this at between 15 and 20 percent. Inflation is out of control prices rose 7 percent in January, 13 percent in February, and it is estimated that it will soon reach 100 percent. The country is running out of money for essential imports. Exports of the 20 main non-oil export commodities fell nearly 60 percent in the first three months of 1998. The local currency, the rupiah, has lost 70 percent of its value since the crisis began at the beginning of the year.
Almost daily factories are closing and unemployment is rocketing. Since the beginning of the year real wages have dropped 50 percent. Interest rates today stand at 50 percent. Although Indonesia has a large rural economy, over the last few years it has been increasingly reliant on food imports. Today many countries, such as Thailand, refuse to accept orders unless they are paid for upfront. As a result in the last two weeks alone the price of basic foodstuffs such as rice, meat and vegetables has increased by 10 percent. Now there is a real fear of major food shortages over the coming months, and many people will not be able to afford what little there is.
The implications for the whole of south east Asia if the Indonesian economy continues to slide are enormous. It's not just that it's the world's fourth most populated country, but Indonesia is rich in oil reserves and has some of the world's most crucial shipping lanes 40 percent of world trade passes through Indonesia's waters as does 95 percent of Japan's oil. The Malaysian government, which faces its own economic problems, is terrified that if Indonesia goes deeper into crisis there will be a mass of refugees fleeing the country.
When asked earlier this year if the IMF would write off Indonesia's debt to western banks, one IMF economist joked, 'It's against my religion!' The Indonesian people have shown what they think of the IMF's measures. Hopefully they will have the last laugh.