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"Everything is done to save the banks"
How the IMF gang wrecked Indonesia

September 14, 2001 | Pages 8 and 9

WHEN INDONESIA spiraled into an economic crisis during the 1997-98 Asian financial panic, the IMF stepped in with a $43 billion bailout loan. Big bankers and international investors breathed a sigh of relief--they'd get back the money they invested in Asia. But for Indonesia's 225 million people, the IMF's "rescue" helped turn a crisis into a disaster.

MAX LANE is national chairperson of the group Action in Solidarity with Indonesia and East Timor and a leading member of the Democratic Socialist Party in Australia. He talked to Socialist Workerabout Indonesia and the IMF.

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WHAT CAUSED the economic crisis in Indonesia that led to the IMF bailout?

THE INDONESIAN economy collapsed in late 1997 as part of the general economic collapse throughout Asia, which hit Thailand, South Korea and the Philippines as well. It appears, four years later, to be hitting the most comfortable of the Southeast Asian economies, that of Singapore.

During the late 1980s and through the 1990s, there was a flood of investment, mainly from North America and Europe, into all these countries, and all in more or less in the same sector--light manufacturing, especially the sweatshop sectors of garments and footwear. Big investments in these sectors also took place in Vietnam and China.

The growth figures that these investments produced gave the impression of boom times--of "economic miracles." The miracle was further accentuated by a host of big infrastructure and telecommunications projects.

The miracle boom also attracted a lot of speculative investments in property, the local stock markets and in the currencies themselves. Many Indonesian banks, for example, offered spectacular interest rates for rupiah accounts.

During late 1997, the penny started to drop that manufacturing capacity in these light industries throughout the region might have exploded beyond what markets back in the U.S. and Europe demanded. There wasn't much else to these economies.

Suddenly, speculators started to withdraw their investments, banks collapsed, and new projects--whether manufacturing, infrastructure or construction--were put on hold or canceled. The whole house of cards collapsed.

In Indonesia, several million people were thrown out of work over a few months. About 20 million people suddenly dropped below the official poverty line.

The situation was made worse there by the incredible level of corruption. Leaked World Bank documents estimated that 30 percent of all World Bank loans to the Suharto dictatorship had been corrupted.

Furthermore, the fact that so many Indonesian banks were owned by Suharto cronies meant that they had been able to ignore most banking rules and had overlent their money to their own crony companies. When the companies collapsed and when speculators withdrew their deposits, the whole banking system collapsed.

Even today, the banking system is artificially kept alive through loans from the government. In turn, the government is only able to make the loans because they're underwritten by the IMF.

WHAT CONDITIONS did the IMF put on its bailout?

THE SUHARTO regime called in the IMF in late 1997. But since then, there have been several rounds of negotiations. Each round has led to more concessions on the part of the Indonesian government to the neoliberal prescriptions of the IMF.

By August 2001, the Indonesian government had basically conceded away everything. There's a commitment to privatize all state enterprises and run them on fully commercial lines--meaning that many services provided to the public at subsidized prices will soon be available only at a fully profitable price.

The Indonesian government has also long provided price subsidies for many basic commodities used by the mass of the population, as well as agricultural inputs for rice farming. All these subsidies have been drastically reduced or abolished.

It's hard to track inflation exactly since 1997 because of the initial huge leap in prices and the staggering fall in the value of the rupiah. But inflation has hit the mass of the population terribly.

The IMF recipe is also calling for an end to the protection of all Indonesian industrial and agricultural production. By late 2000, the government had also conceded on the question of ending any effective protection for rice and sugar agriculture. As a result, in 2001, rice imports reached the highest-ever amounts, including smuggled rice.

There's speculation that the millions of rice farmers in Java, Bali and South Sumatra may soon start abandoning their fields, because their rice can't compete pricewise with dumped U.S. or Canadian rice--or rice from other Third World countries marketed by big agribusiness enterprises. Rice production in Indonesia was never modernized beyond improving seed, fertilizer and pesticides. Mechanization never took place.

This may end up being the biggest disaster area resulting from the IMF neoliberal prescriptions.

SHOULD INDONESIA be expected to pay its debt to the West?

I'M SURE a comprehensive analysis of all the wealth flows would show that it's the imperialist countries that owe money to Indonesia.

All the loans given to Indonesia from 1967 onwards not only came with interest that had to be paid back, but the Indonesian government had to provide privileged access to the Indonesian economy. Since 1997, those privileges have become enormous. The outflow in terms of repatriated profits and interest repayments--not to mention all the unequal exchange rip-offs--means that the U.S., Europe, Japan, Canada and Australia owe huge debts to Indonesia.

And of course, this isn't counting the absolutely huge siphoning of wealth to Europe out of Indonesia that took place continuously during the 17th, 18th, 19th and early 20th centuries. It was three centuries of exploitation that left Indonesia impoverished in the first place.

PEOPLE SAY that, despite some shortcomings, you have to have an IMF to stop financial disasters. What's your opinion?

IN THE current world, financial disasters are inevitable because of the irrationalities and anarchy of the capitalist system. When a disaster hits, however, the IMF is only used to bail out the huge corporations.

In Indonesia, everything is being done to save the big banks and make sure outstanding debts to multinational companies get paid. This is done at the expense of the living conditions of the 200 million impoverished workers and peasants. They're made more impoverished as prices rise and unemployment increases due to the collapse of economic activity.

Worse still, the actual productive capacity of society is consciously allowed to degenerate with the ending of protection and the dumping of goods produced in the imperialist countries. The future productive capacity of society is also massively damaged by driving more than 10 million children out of school, as fees and other life costs increase.

In Indonesia, there is, however, a very strong mass sentiment that outside economic help is needed if the country is to get out of the economic disaster it's now in. I think there's a big amount of truth in this.

Indonesia does need the "help" of the imperialist countries. But the help it needs isn't more loans. The "help" it needs is for all the country's debts to be canceled.

About 50 percent of the government's revenues are eaten up by loan repayments. Some calculations even indicate that all of the new loans are eaten up just to pay old loans. There's nothing left for health and education.

As a percentage of the overall budget, expenditure on education in Indonesia is now the lowest since the country first became independent. The major universities are being corporatized. Schools are starved of funds. In late August and the beginning of September, there's been a strike wave of teachers protesting that they haven't received the wage increases officially granted them several months previously.

The debts are a massive burden and constraint on any real development. And even after the debts were all canceled, there would still be the need for more transfer of wealth and technology from the advanced industrial countries to Third World countries--that is, countries impoverished by centuries of European and American colonialism.

But the IMF will never do this. The IMF is only interested in bailing out its own cronies--the big multinational corporations and their local partners.

As public utilities are privatized, some of the new multinational operators are guaranteed minimum turnovers which ensure that either consumers have to pay impossible prices or taxpayers, through the government, have to subsidize the multinationals. This is already happening in the electricity generation sector. Suharto cronyism is replaced by imperialist cronyism.

The IMF should be abolished altogether. New international development institutions will have to be built from scratch. In the meantime, the movement for the cancellation of all the debt and abolition of the IMF must grow hand in hand with building direct solidarity with progressive movements in the Third World itself.

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