Loan Sharks

Indonesians protest the IMF.

Rachel Rinaldo

Indonesian students raise university flags in front of Jakarta's presidential palace during the fifth day of demonstrations in January.
—Mass protests filled the streets of Jakarta in January, as thousands of demonstrators loudly rejected the Indonesian government’s plan to phase out subsidies on utility rates.

On January 1, President Megawati Sukarnoputri’s government introduced major increases in the prices of fuel, electricity and telephone rates. The hikes were part of economic reforms backed by the International Monetary Fund and intended to help balance Indonesia’s 2003 budget deficit, which is estimated at $3.9 billion.

Over the next two weeks, daily anti-government rallies of hundreds and even thousands of people spread across the archipelago. At the peak of the demonstrations, students in Jakarta attempted to break down the gates of parliament, and another group seized several fuel trucks.

For many Indonesians, it was a reminder of the powerful May 1998 protests against a similar IMF-mandated rise in fuel prices, which helped trigger the resignation of President Suharto, the country’s longtime dictator. This time, the government backed down, lowering the price increase for certain types of fuel and postponing the telephone rate hike.

The demonstrations diminished, but did not disappear. Instead, discontent with Megawati’s economic policies appears to be mounting in advance of the 2004 election, as is popular criticism of foreign donors such as the IMF and World Bank. “The price hike is the consequence of the prescription of the IMF for Indonesia,” says Binny Buchori of the International NGO Forum on Indonesian Development.

Buchori says that the purchasing capacity of Indonesians has dropped 30 percent since the 1997 economic crisis, causing real hardship. Many are still struggling. The urban poor are hard-hit by high inflation and joblessness, and more than half of the population of 220 million is estimated to live on less than $2 a day. Given all this, Buchori says that calls to unseat Megawati are beside the point. “As long as we still have the contract with the IMF,” she says, “we will still be in the same difficult situation.”

Others go even further. Herly Putra, a university student and member of a leftist group called Front Nasional Demokratik, says it is important not just to oppose the price increases, but to ask why prices are being raised. It is not just Megawati who needs to go, he maintains, but the whole system. “International capitalism must leave Indonesia,” he says.

Though government officials contend the price hikes affect mainly those in the tiny middle and upper-middle classes who own cars and have telephone lines, many Indonesians were incensed about the timing. The new policies were introduced just after the government announced that ex-bank owners, who hold combined debts to the state of more than $13 billion (dating from the government’s bailout of the banks in 1997), would be allowed to settle their debts without spending time in jail.

Indonesia’s debt is now truly massive. Estimates put the country’s foreign debt at $70 billion and its domestic debt at $80 billion, large amounts of which will start to come due in 2004. Despite the government’s retreat on utility rates, the Consultative Group on Indonesia, an organization of donors including the World Bank and Asian Development Bank, announced on January 22 that it would provide Indonesia with $2.7 billion in new loans to help finance the country’s budget deficit. The CGI and IMF are both urging Indonesia to speed up reforms in order to achieve higher economic growth rates.

The IMF has long urged Indonesia to abandon expensive subsidy programs. So far, the country has complied with its recommendations, raising revenue by eliminating subsidies and privatizing state firms. State-owned telecom company Indosat was recently sold to a Singaporean company, and a bill that would privatize Indonesia’s water system is currently before parliament.

But activists and many politicians are calling for Indonesia to exit its $5 billion IMF loan program when it expires this fall. “We all know the IMF works just to keep the investments of international capital in Indonesia safe,” says Mulyandari of Koalisi Perempuan Indonesia, a women’s group in Jakarta. “It is not to save the economic situation in Indonesia or to be able to develop and implement pro-poor policies.”

Mulyandari says her group’s members bear the burden of price increases. “Women are in the worst situation when the family is poor,” she says, “because of their duty to manage the purse of the family, and because of the idea that as a mother and a wife, a woman should be able to … leave her own needs behind.”

Some activists advocate debt relief for Indonesia, arguing that the country should not have to bear responsibility for the huge loans incurred during the 30 years under Suharto. Large portions of those loans were lost to corruption. Anti-corruption groups are concerned that current loans will face the same fate.

For now, the anti-price-hike demonstrations are dying down (and being replaced by anti-war protests). But anger is still simmering, and policy-makers would be wise to heed it. “We know that this economic situation has a connection with the global situation,” Mulyandari says. “We always mention that this economic situation is also the fault of international institutions.”

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