Indonesia On Brink Of Social Upheaval Financial Crisis Threatens To Push Nation Into Poverty, Revolt

Indonesia’s currency is collapsing, its stock market is crashing, its crops are crippled by drought and its ailing president has embraced a national spending plan that financial analysts condemn as a prescription for disaster.

Yet the worst might be yet to come. Experts fear the panic food-buying following an economic meltdown this week is a signal of social and political upheaval, not only in Indonesia but throughout the region.

“I think the situation is very serious,” said Walter Falcon, director of Stanford University’s Institute of International Studies, who has spent 25 years studying Indonesia. “I don’t know what I believe now about the Asian model of economic development, and I feel threatened about the American economy.”

Falcon and other Indonesia watchers are concerned that the deepening financial crisis will sink tens of millions of Indonesians below the absolute-poverty line of $1 per day and unleash ethnic, religious and class rivalries that could tear the country apart.

If that happened, they warn, shock waves would rock the region, further weakening financial markets, reducing trade and greatly increasing the impact on the world’s major economies, especially those of Japan and the United States.

Robert Manning, a former policy adviser to the State Department and now a senior fellow at the Council on Foreign Relations in Washington, already sees social unrest inevitable in South Korea, Thailand and other countries hit by the financial crisis that began six months ago with the collapse of the Thai currency, the baht.

But it is Indonesia that faces the gravest immediate threat, he and Falcon said.

“I think that in relative terms, Indonesia is worse off,” Falcon said. “The Philippines seems to be muddling through; Malaysia is probably rich enough to weather it; Thailand is still taking it on the chin, but I think it will come through; and South Korea is too important strategically (to the United States) to let it go down. Indonesia is big enough to be really important, but not quite important enough to be strategic.”

Manning warned that if Indonesia does “spin out of control,” it could revisit the nightmare of 1965.

That year in Indonesia - the subject of the Mel Gibson and Sigourney Weaver film, “The Year of Living Dangerously” - was a time of chaos and bloodshed. In the turmoil surrounding the overthrow of Indonesia’s first president, Sukarno, by its current president, Suharto, as many as 500,000 people were slaughtered, many of them members of Indonesia’s ethnic-Chinese minority.

Doug Ramage, the Asian Foundation’s representative in Indonesia, says the nation’s ethnic Chinese are widely resented because they comprise merely 3 percent of the population but control about 70 percent of the nation’s wealth.

Almost all top business leaders are ethnic Chinese, many of whom have descended from families that first moved into the area in the 1500s and were groomed by Dutch colonialists to serve as a kind of managerial class.

But rifts between ethnic Chinese and other ethnic groups are not the only tensions that threaten Indonesia, Ramage and others say. The nation’s military is divided into several factions, and the Muslim majority is split between those eager to transform Indonesia into an Islamic state and those who want to retain a secular form of government.

Even before the financial crisis, festering tensions in the nation of 203 million had sparked attacks on Buddhist temples and Christian churches, as well as on Chinese businesses. And already, Suharto’s iron grip on the reins of power in the world’s fourth-most-populous nation has weakened because of his poor health and the public’s growing dissatisfaction with his family’s stranglehold on major industries.

Under intense international pressure, Indonesia signaled Monday that it is finally prepared to begin making sweeping economic reforms prescribed by the International Monetary Fund to stabilize its currency and stock markets.

Suharto’s announcement of giant spending projects last week flouted an austerity program recommended by the IMF and sent the rupiah into a tailspin. Critics said he was sacrificing the country to protect his family’s entrenched business interests.

But after a two-hour meeting with Suharto on Monday, Stanley Fischer, the IMF’s second-highest-ranking official, told reporters that the Indonesian leader “didn’t leave any doubt” in the session “that he was willing to get behind the (IMF plan) and go beyond what had been agreed in the original program.”

Fischer’s disclosure, a major breakthrough in U.S. and Western efforts to prod Suharto into complying with the IMF demands, was expected to have a significant effect on financial markets and at least partially restore the value of the rupiah.

Although the reforms - which end government control of key industries - could profoundly threaten Suharto’s hold on power, his refusal to implement them could also be his undoing.

Unprecedented calls for Suharto’s resignation have begun to appear in the nation’s newspapers, and rumors of a possible military coup swirled through the capital city.

If Suharto does not step aside, some experts say he might be pushed aside by the military, which, through a doctrine called dwifungsi, claims a legitimate political role as well as a security role in the nation’s affairs.

Compounding the nation’s financial crisis is a serious drought that has caused widespread misery in the more remote areas of the sprawling archipelago, which consists of more than 17,000 islands. Hundreds of thousands of Indonesians are believed to be threatened by starvation.