U.S./IMF Godfather and
the Crisis in Indonesia

Revolutionary Worker #957, May 17, 1998

The U.S.-backed Suharto government in Indonesia came to power in 1965. And in the following months, hundreds of thousands--by some estimates, a half million--Indonesian leftists were hunted down and killed by government soldiers. Despite Suharto's bloody rise to power, he was hailed by the U.S. for his anti-Communist politics and economic policies that welcomed foreign intervention.

After years of stagnation, the Indonesian economy began to grow, in large part due to the worldwide demand for Indonesian oil. Much of Indonesia's economy is based on plantation crops and other natural resources, including oil, gas, timber, metals and coal. And foreign capital has flowed into the country for the last two decades. From 1970 until 1997, the Indonesian economy showed an annual growth rate of at least 6 percent and it was seen as one of the miraculous "Asian Tigers" of East Asia.

But by the mid-1990s much of the foreign investment that had poured into Indonesia was tied up in failed or stalled ventures. The real estate market was out of control--the cities were full of half-completed office towers. And the country's foreign debt was continuing to climb sky high. When the Asian crisis hit in the summer of 1997--starting with the devaluation of the baht currency in Thailand--the Indonesian economy came crashing down.

The Indonesian currency, the rupiah, began to go down in value. By the end of 1997, it had fallen by about 75 percent. And this has made it more expensive and harder for the government and Indonesian businesses to pay back foreign debts. This devaluation has also meant a sharp increase in the price of imports--prices for staples like rice, vegetables and cooking oil have gone up. Tens of thousands of workers have been laid off and the unemployment situation is expected to only get worse. Officials and labor leaders estimate that as many as 2 million people in Indonesia will lose jobs in the next year--which will be added to the 4.4 million who are already unemployed and the millions more who live hand to mouth with part-time work. And some economists say the true extent of unemployment in Indonesia is even higher, since people who may work only an hour or two a week are officially designated as "employed."

IMF "Rescue"

In November, the Indonesian government accepted a loan package from the International Monetary Fund. This loan, like all loans the IMF offers to poor, crisis-ridden Third World countries, demanded that in exchange for help, the government implement all kinds of austerity measures and open its markets up even further to foreign investment.

In order to get the over $40 billion offered by the IMF, the Suharto government agreed to an austerity program that includes a gradual reduction of import tariffs, deregulation of some government-supported commodities, a reduction of taxes and other obstacles to exports, and a review of public spending.

Such IMF-imposed measures were aimed at restoring confidence in investors. But they were also likely to cause widespread bankruptcies, rising prices, massive job losses and tremendous suffering and hardship for the masses of Indonesian people--as well as further economic and political instability. And none of the IMF measures provided for lightening Indonesia's foreign debt burden--in fact this deal only added to the country's foreign debt. But the IMF had made Suharto a "godfather offer" he couldn't refuse.

The Reluctant Suharto

The IMF is dominated by the U.S., and was deeply involved in putting together the IMF deal with Indonesia. The IMF and the US hoped investments would start flowing back into the Indonesian economy with the announcement of the loan. But the crisis continued to deepen as potential international investors waited to see if Suharto would, in fact, carry through with the IMF-imposed reforms.

Suharto has built a vast and wealthy empire in which family connections, favoritism and corruption are deeply entrenched in the whole way the economy functions. Suharto and his children control hundreds of companies. The family owns TV and radio networks, banks, chemical factories, pharmaceutical companies, shopping malls, hotels, paper and pulp mills, shipping lines and taxi companies. And the IMF demands are aimed at breaking down this kind of "cronyism," which can sometimes stand in the way of foreign penetration. The IMF agreement with Indonesia demands that Suharto eliminate many of the government concessions and licenses that have enriched his family.

By January, it became clear that Suharto was dragging his feet on implementing the IMF demands. Suharto announced his government would increase spending in the next year by 24 percent, despite his promise to the IMF to implement a program of drastic austerity. And he had failed to carry through with his promise to cancel 15 government "mega-projects." All this touched off a further drop in Indonesian stocks and another devaluation of the rupiah, as investors continued to pull money out of the still uncertain Indonesian economy.

On January 6, Suharto announced a draft budget for 1998-99 that failed to meet the IMF requirement that it show a surplus. And it was based on wildly optimistic exchange rate and growth projections. The IMF considered this move by Suharto a direct defiance of the IMF agreement. And in typical imperialist fashion the IMF and the U.S. rushed to let Suharto know he must submit to the U.S./IMF plan. And President Clinton, revealing the real power behind IMF dictates, immediately called Suharto from Air Force One and demanded that he start implementing IMF reforms, "or else..."

An array of imperialist officials, including the number two IMF guy, Stanley Fischer flew to Jakarta to warn Suharto that his $40 billion loan could be suspended if he did not comply. And Suharto got calls from Chancellor Helmut Kohl of Germany, Prime Minister Ryutaro Hashimoto of Japan, Prime Minister John Howard of Australia--all of whom repeated Clinton's message.

U.S. Deputy Secretary of the Treasury Lawrence Summers was dispatched by Clinton to put further pressure on Suharto. And U.S. Secretary of Defense William Cohen went to meet with Suharto, to discuss expanding security ties with the Indonesian government. White House officials said this was part of a two-pronged strategy--to press Suharto to make economic concessions while trying to prevent the crisis from sowing political instability. "You can't have an Indonesia that becomes destabilized without security concerns arising in the region," a senior U.S. official said before Cohen's meeting with Suharto.

The U.S. has been directly involved in training Suharto's brutal military forces. And there have been dozens of joint military exercises between the U.S. and Indonesia in this last year. Cohen's trip clearly aimed to strengthen this U.S. military role in Indonesia and throughout the region.

On January 15, the IMF forced Suharto to sign a new IMF agreement. Even harsher than the earlier one, this deal calls for the closing of weak banks, the breakup of monopolies and the end of financing for special projects run by Suharto's children and close friends.

The U.S. had hoped all this would put an end to Suharto's defiance. But Suharto has continued to delay implementing many of the IMF demands--which would threaten his own and many of his friends' lucrative businesses. And Suharto has also been reluctant to carry out the austerity reforms dictated by the IMF loan--not because he cares about the people--but because he fears such measures could lead to even more food riots and anti-government demonstrations.

U.S. Strategic Concerns

President Clinton has stressed that U.S. economic fortunes are tied to economic growth in East Asia. And opening world markets has been a centerpiece of U.S. foreign policy. But when the crisis hit East Asia last year, the U.S. also made it clear that it's interest in "helping" the Asian Tigers goes beyond preserving their role as trading partners.

Treasury Secretary Robert E. Rubin announced, "These countries are not only key markets for U.S. exporters, but are also crucial to our efforts to promote growth, peace and prosperity throughout the world"--which in imperialist-speak means the U.S. wants to protect its right to politically and militarily dominate the whole region.

These kinds of strategic concerns by the United States certainly apply to its view of the crisis in Indonesia. Throughout Suharto's brutal rule, imperialism has built up and relied on Indonesia as a source of relative stability in Southeast Asia, a dependable ally for the U.S., and a crucial source of oil and other raw materials for Japan and other nations. The sheer size of the Indonesian market of 200 million people, and the importance of its rich natural resources, means what happens there has a profound impact of the rest of the region. And the Pentagon has repeatedly expressed concerns about the strategic importance of Indonesia, both because of its control of shipping routes and because it has the world's largest Muslim population. One senior American official recently expressed the fear that the economic crisis in Indonesia, if it persisted, could lead to "a rise in Islamic radicalism."

Now, the U.S. is worried that the growing economic and political instability in Indonesia could "spill over" to other countries in the region and even beyond. Bourgeois economists point to the way the currency devaluation in Thailand last summer set off a whole series of devaluations and crisis throughout East Asia. And they warn that something like this could easily happen again, seriously threatening major imperialist investments.

The U.S. is also concerned about sending a clear imperialist message to Indonesia about "who's in charge." One New York Times article put it like this: "With its falling currency and huge foreign debt, Indonesia has become the epicenter of Asia's economic turmoil. If the rescue effort fails here in the world's fourth-largest nation, the damage could spread around the world. If Suharto successfully defies the IMF, both American and IMF officials worry that other countries would then feel free to ignore the fund's requirements for economic growth."

The U.S./IMF efforts to force Suharto to submit is a political as well as an economic struggle. This is why so many U.S. imperialist big shots have been sent, godfather-style, to put pressure on Suharto. The frequent meetings at the White House on the Indonesian crisis have included not only Treasury Secretary Robert E. Rubin, and his financial experts but top State Department officials, CIA analysts, Pentagon brass and national security aides.

The U.S. has played an open and major role in forcing Suharto to carry out the IMF reforms. And it has had a very hands-on role in directing and training Indonesia's military--which is now brutally attacking the mass protests which are being sparked, in large part, by the implementation of IMF austerity measures.

The New York Times recently reported that U.S. State Department officials were concerned about an anti-American backlash in Indonesia, "where it is widely assumed that the U.S. is the secret hand operating behind the IMF." And the Pentagon has also expressed worry about its association with the Indonesian military, which is brutally suppressing demonstrations, arresting government opponents and torturing political activists.

US/IMF Plan:
More Misery for the People,
More Imperialist Domination

Since the late 1980s the U.S. government has been trying to pave the way for more diversified and unrestricted imperialist investment in East Asia. It has fought to liberalize, deregulate and privatize the Asian economies. And one of the major ways it has pushed for such "reforms" is through the "structural adjustment programs" used by the IMF and the World Bank.

Poor countries like Indonesia get IMF loans to try and get out of debt. And the "restructuring" reforms the IMF demands are supposed to help them pay their debts and get back on their feet. But in reality, this restructuring only causes deeper debt and poverty.

The IMF is demanding that Indonesia close down many of its banks and privatize 12 key state enterprises, including telecommunications, mining and cement companies. And Suharto is supposed to step-by-step, impose harsh austerity measures, like the recent hike in fuel prices.

Such measures will clearly create more favorable opportunities for foreign investment. And at the same time, these reforms will lead to increased misery for the Indonesian people, especially the poor. In order to pay off Indonesia's foreign debt, the IMF is telling Suharto he must earn more on the world market--which means cutting back on domestic spending, exporting more, and making exports cheaper. And he is being told to reduce government spending--which usually means cutbacks in subsidies for health care, education, food and housing.

The U.S. godfathers are telling Indonesia that if it just follows the IMF plan, it will emerge from this crisis economically stronger. But the reality of the situation is that the measures imposed by this U.S./IMF bailout could lead to even deeper economic crisis and political instability. There will be tremendous suffering and hardship for the masses. And more upheaval and protest could even more seriously threaten the U.S.-backed Suharto regime.

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