Indonesia: the Weakest Link of South East Asian Capitalism

This article presents a summary of the economic situation of capitalism in Indonesia today and in the future. It also looks at the implications for the struggle of the working class and develops the broad outlines of a programmatic and socialist response to the crisis of this system. It will serve as the introduction to the publication in book form of " Di atas mata pisau" , or "On a Knife's Edge", an analysis of the Asian and world economy after the meltdown of 1997. The book is part of the Indonesian Socialist Education Project.

Introduction

This article presents a summary of the economic situation of capitalism in Indonesia today and in the future. It also looks at the implications for the struggle of the working class and develops the broad outlines of a programmatic and socialist response to the crisis of this system. We think it comes just at the right moment when the Gus Dur-Mega government is trying to push for the remedies of the International Monetary Fund and when workers, poor peasants and students are mobilising against the price hikes, in reality a new subsidy to the rich from the poor.

It will serve as the introduction to the printed publication of "Di atas mata pisau", or " On a Knife's Edge", an analysis of the Asian and world economy after the meltdown of 1997. The publication in book form will make the analysis more accesible to working class readers who have no acces to the Internet. The book is part of the Indonesian Socialist Education Project, a collaboration between Indonesian and European activists, which aims at contributing to the political education of activists in Indonesia and at familiarising a whole new generation with the ideas of Marxism.

As always we welcome comments, suggestions and criticism.

This article is now available in Bahasa Indonesia:
Indonesia: Mata Rantai Paling Lemah

Kapitalisme Asia Tenggara

Indonesia : the Weakest Link of South East Asian Capitalism

Few countries in recent history have suffered such a dramatic reversal of fortunes as Indonsia. From being considered one of the best performing countries in the region in the 80's and '90's it has become probably the weakest link of South East Asian capitalism. The economic breakdown has thrown the country back at least 20 years.

The social consequences of this crisis have been gruesome and will be long lasting. Children and adolescents, the future of any nation, are worse off than a few decades ago. Many warn about the possibilty of "a lost generation" of malnourished and intellectually stunned youth. The daily toll of children dying from malnutrition and lack of healthcare is the equivalent of 9 schoolbuses full of children falling into the abyss every day. Indeed 450 children die every day in what is a potentially rich country.

Indonesia was the hardest hit of all the economies in the region during the 1997 meltdown and it is finding it extremely difficulti to recover, even temporarily. Three years after being hit by the crisis, "unemployment is very high, the banking sector is still essentially not working, and the corporate restructuring is making only minimal progress" concludes Mr Roth, the United States assistant Secretary of State for East Asian Affairs.

In 1998 its economic activity shrank by 13.4% and inflation reached 80%. Only Thailand matches this downfall with a decrease of 10% of its GDP. Hong Kong's activity fell by 5.1%, Malaysia by 7.5%, the Phillippines by 0.5%, Japan by 2.1% and South Korea by 5.8%.

While countries like South Korea bounced back rapidly in 1999 with a 9.8% growth, Indonesia's economy continued to suffer a contraction of 0.4%. Its immediate neighbours like the Philippines grew by 3.2% and Malaysia by no less than 5.2%.

RECOVERY WILL BE SHORT-LIVED

Indonesia's forecast for the beginning of the new century is the most modest with a 2.4% growth. Those rates of growth have nothing in common with the pre-crisis levels of "miraculous growth". At that time the sustained growth figures had completely transformed the anatomy and the size of the Indonesian economy. This was a time where an economy growing at 8% a year meant that it doubled in size in 9 years. During those three decades the region was so accustomed to rapid growth that the concept of a recession was so loosely used it meant a slow annual growth of 5% rather than an actual contraction of the economy. That epoch has definitely come to an end.

The recent slow growth has mainly been fuelled by an export boom and a small increase in domestic consumption. This export increase is largely due to low prices after currency devaluations and price cuts at the expense of profit margins. It is a desperate attempt to hold on to parts of the world market. Price cutting has been helped by massive surplus capacity in some industries due to a catastrophic collapse in domestic demand and has very little to do with "efficiency gains". But this cannot be sustained, in particular because everybody in SE Asia "has been selling anything at any price - that is not a long term strategy" says a strategist from Merryl Lynch. "Once the benefits of short term currency depreciation have worn off, the demand for the region's product will decrease" is the conclusion of another analyst.

Strong demand depends mainly on the capacity of the United States and other advanced capitalist states to absorb those imports thus sustaining the rebound in Asia. This is not guaranteed at any level in the next few years due to the fact that a recession is inevitable in the advanced capitalist countries at some stage.

Here Indonesia is also in the rear. In 1999 the strongest levels of export growth came from the Philippines with 25%, Malaysia with 10%, Thailand 6% and Indonesia with only a meagre 2,6%. Even then the value of the exports of 1999 were still below the total for1997. Export growth in the region has also been stimulated by an increase in demand for electronic goods. The structure of Indonesia's manufacturing industry is largely dominated by textiles. The electronic sector is comparatively smaller in Indonesia than in other economies in the region. This has meant that it has benefited less from the possible export gains than its neighbours. But Indonesia, like Malaysia's and Singapore's refining industry, benefited from a strong rebound in oil prices. Indonesia's oil and gas exports increased by 15% in dollar terms in 1999, largerly as a result of the jump in global oil prices.

A BURNT OUT MESS AT THE CENTRE OF THE ECONOMY

The main problem for the Indonesian capitalist economy is the private sector debt (some $40 billion) and its impact on the banking system. In 1997 the Indonesian banks collapsed. As a result of this the country is facing a quasi inexistant banking system. This situation forced the governement to close some banks and take over the others together with their assets (more than 170,000 small and medium size firms). These companies and banks, the remains of Indonesia's once high flying modern industrial sector, form a virtually burnt out mess at the centre of the economy . The banks are paralysed by the high level of non performing loans (it is estimated that only 4% of those loans can be recovered) and inadequate capital levels.

The IMF is insisting that indebted companies and banks be called to negotiate a repayment plan. Until now most of them have just refused to reply to their unlucky money lenders. Thanks to their high-level relations and the state and economic administration, those capitalists have hoped to escape repayment of their debts. Indeed Indonesian cronyism, a modern version of the 19th century robber barons in Europe and the United States, is considered as a real licence to pillage.

The price the government is going to pay for rescuing those insolvent firms and banks is a staggering $130 billion. Needless to say that in reality the bill for this rescue operation of the business tycoons will be paid by the poor, the workers and the small peasants. These are the classes that are going to pay for the squandering of the resources by unscrupulous capitalists. These are the IMF plans the Gus Dur-Mega government is trying to put into practice.

LACK OF CONFIDENCE IN INDONESIA'S STABLITY

It is no accident that in this context foreign investment has shaply decreased and that more generally the inflow of private capital has been practically non existent. Foreign direct investment came mainly from the IMF and other official funds. Private foreign direct investment is in steep decline with the exception of funds targeted at taking over troubled banks and other indebted firms.

A recent poll of the Asian Wall Street Journal revealed that 57% of businessmen identify Indonesia as the least favorable country in SE Asia for direct investment. For capitalists Indonesia has become the least attractive country in the region in which to risk their money and make profits. Without productive investment there can be no talk of a more solid recovery.

So far, foreign and domestic capital have shown more interest in investment in the stock exchange. One brokerage firm described Jakarta's stock exchange (JSX) as the best performing market in the world in 1999, up almost 70% in USD terms since the beginning of 1999. This again shows the parasitic nature of capitalism.

Industrial performance is still very patchy. Industrial production is at 60% of its capacity. This again is one of the lowest percentages of utilisation of potential industrial capacity in the region. This is a modern expression of real overproduction, the classical crisis of the capitalist economy. In reality what has been described as a financial meltdown in the region was just the financial face of a classical crisis of overproduction, the mechanisms of which are explained in this document.

There is almost no investment in factories, power stations and office buildings especially around Jakarta. The only investments have been in resources, cash crops, agriculture, agribusiness and fisheries.

The economic policy of the Gus Dur-Mega government is a continuation of that of his predecessors under Habibie and Suharto. It is a policy which favors the profits of the capitalists and is dependant on the International Monetary Fund. The main comparative advantage of Indonesian capitalism is its "low labor cost structure," as the Coordinating Minister of Finance and Economy admits. "Even before the crisis the wages were amongst the world lowest. " Labor costs represent only 5 to 10% of the total production costs. This has been and still is the government strategy to lure foreign capital.

WORKING CLASS AND SMALL PEASANTS MADE TO PAY FOR THE CRISIS

What does this mean for the Indonesian working class? Despite the insufficient increase in the minimum wage, it means the continuation of a low wage economy based on the ruthless exploitation of the workers. This is the condition for the survival of Indonesian capitalism on the world market dominated by cut-troath competition. Left activists in the movement must base themselves on this analysis to explain there cannot be a solution to the misery and exploitation of the working class and the poor farmers, not only under this government but under capitalism itself.

The logic behind the IMF inspired "reforms", "structural adjustment plans" and loans is that the market economy in Indonesia has been distorted or damaged by cronyism and that there is too much of a state presence and intervention. Its solution lays in a so-called real free market economy through measures of deregulation, flexibility and privatisation of state enterprises. This will open up the Indonesian economy to more dependance on foreign capital, more exploitation of its natural resources and generally more misery and inequality. The foreign debt of Indonesia is already reaching 95% of the annual gross domestic product.

The IMF, as we all know, is no charity organisation and wants its loans like those from the Club of Paris (group of international moneylenders) to be paid back, with interest of course. To to repay this debt the governement is cutting education spending, selling state enterprises and increasing the price of fuel (+30%) and electricity (+10%) by winding down subsidies and introducing new taxes on soft drinks, cement, etc., which will be passed on in the form of an increase in consumer prices.

This way the poor are going to subsidize the rich. It is not only the urban masses, but also the rural masses which will suffer from these measures. Not only do the peasants depend on fuel for cooking and light, but the price of fertilisers and pesticides will also increase as a result. A government body expects inflation to rise by at least 10%. More realistically it can be expected to rise to between 25 and 30%.

The capitalists and the bourgois political leaders in South East Asia - Indonesia is no exception - have denied for decades that the Asian Tigers, and would-be Tigers, could be affected by the economic cycle of booms and slumps. Many in the West agreed with this. Even now after the catastrophic meltdown, quite a number of economic analysts continue to rule out this fundamental process of the capitalist economy for South East Asia. Now with the so-called "New Economy" (information technology and the internet) in the USA, which is experiencing its longest economic expansion in history, the witchdoctors of capitalism are predicting the same. Again they will be proved wrong.

TEMPORARY CRISIS ?

Undoubtedly an important part of the working class and the poor peasantry has also had its political thinking shaped by the years of growth in the past. Despite ruthless exploitation and rising inequality, those 30 years were also synonimous of growth in incomes and purchasing power and a decrease of poverty. Hopes and illusions must still exist amongst the masses that the the "crisis" is only temporary. The government is of course cynically playing that card. "The price increases, etc., are a case of 'force majeure'," explains the President Gus Dur. Hisexplanation is clear: these are exceptional and temporary measures, after this we will soon be back on track again like before 1997.

But there is no possibilty of returning to the pre-crisis period. In that sense Indonesia and the rest of the region is in fact "back to normal" after what was an exceptional thirty year period which will not, and cannot, be repeated. The reasons for that are explained in this document "On a Knife's Edge". Does this mean there cannot be any periods of further growth. Quite the contrary. Periods of growth will follow inevitably periods of contraction. Booms make place for recessions, real recessions where the economy will not grow anymore. That has always been the wau of the capitalist system. But these recoveries will not take the economy back to the levels of the post-war boom.

"Conjunctoral cycles in the life of capitalism play the same role, as for example, cycles of blood circulation in the life of an organism. () From the state of the pulse, in connection with other symptoms, a doctor can determine wheter he is dealing with a strong or weak organism, a healthy or a sick one" concluded the marxist theoretician Trotsky and comrade-in-arms of Lenin.

The conjunctural fluctuations in the region, and in Indonesia in particular, will be more turbulent, more frequent and unpredicable than ever before. The nature of the periods of expansion will be different. They will only see a partial reabsorption of the number of unemployed and a very limited reduction of the number of poor. Inequality will continue to rise. Political and social stability will not be on the agenda.The general direction of the economy and politics will be completely different than before. Convulsions in society will be of great proportions and will be felt in every aspect of human and social life: in religious and ethnic relations and in particular in its most important sphere, in the relations between the social classes themselves and the capitalist state and the military.

Indonesia is much more vulnerable than any other country in the region in terms of political, social, religious and ethnic strife. Although, until now, the so-called religious and ethnic aspects of this instability seem to dominate this will not be the case for very long.

NEW POSSIBILITIES FOR AN AWAKENING OF THE WORKING CLASS

A slight recovery of the economy combined with a decline in the number of unemployed, together with some growth in orders and profitabilty of the companies, will open a new cycle of offensive economic struggles (for wage increases and better conditions) on the part of the working class. Although still divided and not well organised, such an offensive will be accompanied by a drive for unionisation. The 29 or so different "national" union federations which have sprung into existance during the last few years are an indication of this.

The bosses are assiduously preparing for this new situation. "The Indonesia National Business Development Council is looking to set up a new mechanism to deal with labour disputes between workers and factory owners, which are likely to become more frequent as the economy recovers and wage demands, which went on hold during the economic crisis, resurface () the council wanted to see a committee established representing business, the Government and unions which would mediate in labour disputes. There must be an understanding that before they go on strike that there will be a team to talk to them ... or we will negotiate with the company in charge about how big an increase can be made." (Australina Financial Review, 21 March, 2000).

The 90 million strong working class, because it was weakened temporarily by the crisis and its consequent mass unemployment, wage cuts, growing job insecurity, was not able to play a leading role in the downfall of Suharto and the political process that has unfolded during the last 2 years.

In the new context of new attacks (IMF plans) and a slight recovery the young working class movement is starting to assert itself. This was already clear with the increase in the number of strikes in Jabotabek around the Idul Fitri bonuses this year. A whole period of succesful economic struggle will increase the confidence of the Indonesian proletariat. This could become the forerunner of a more political offensive.

That's why it would be wrong the minimize the meaning of a strike or action of the workers simply because it starts from economic demands. Especially in the context of Indonesia, with the political role of the army and state intervention in the unions and in social conflict, the passage from "purely" economic demands to more political aims of the struggle is very probable. There is no such thing as an impermeable wall between the "economic" and the "political" aspects of a strike. Strikes can start on very basic economic questions and finish on a high political level. The opposite is also the case. The most important thing to remember is that the mass of the workers learn from experience. The concrete experience of struggle is their best school of trade unionism and politics. That's how they will break out of the routine of their thinking and activities. That's when they will be more open to question their old prejudices and will want to learn. The more active workers in particular will be affected by this process of becoming class conscious.

Trade union and left activists have, of course, a crucial role to play in those events that will make conscious the unconscious anticapitalist and socialist instinct of the workers. As the working class begins to flex its muscles it also tries to look for a program to free itself from the modern slavery of capitalism.

A PROGRAM FOR SOCIALISM IS NEEDED

The point of departure of any demand is the unconditional defence of working class interests. The demands of the movement should aim to start from the immediate concerns of the workers and their families and formulating solutions which raises their understanding of the irreconcilable nature of the different class interests in society. Through the struggle for these demands the workers will raise their consciousness to the need for the overthrow of capitalism and the socialist transformation of society.

Defensive demands like the cancellation of the price increases and the placing of control over prices in the hands of commitees of workers and peasants and the end to privatisation should be combined with offensive demands like the increase of the minimum wage by 100% (it would be even better to put a concrete figure on it), the reduction of the working week to 32 hours without loss of pay, the right to organise freely inside the factories, the end to the role of the military in politics and social conflicts, the cancellation of the foreign debt, the nationalisation of the assets of Suharto and his cronies and its utilisation for the social needs of the population, etc.

When the bosses start to scream that they can never pay those very humble demands of the workers we will ask the workers to inspect the bosses' accounts. So they will learn where the wealth produced by their sweat and blood has gone. They will learn the mechanics of capitalist profits. Not only will we have to demand this on the level of one factory or corporation, but also on the level of the whole of society.

More generally we will have to propose a program for the complete reorganisation of society through the transition form capitalism to socialism.

We can start with an urgent and massive program of socially and ecologically useful works: rebuilding and extending a public and free transport system, more trains, buses, resurfacing the roads etc. The building of millions of houses, a guaranteed sewage system and drinking water for every city and kampung. Free health care for everybody through a national health system of hospitals, clinics and so forth. Education must be accesible to everbody and not only for the better-off.

To finance this the nationalisation of Suharto's assets (estimated at $16 billion) will be a good step forward but it is not enough. The nationalisation of the big corporations (domestic and foreign), the banks and the financial institutions and the mineral and forest wealth is a necessary step towards getting control of the economy. In a certain way this is easier now than before. Capitalism in the last two years has centralised in its hands the main domestic economic and financial levers via the forceful nationalisaton of the banking system and the the concentration of economic power in the hands of the Suharto clan. This is the only meaning we can give to the term a "people's economy". This nationalisation should be under workers' control and management. This control of the economy is necessary in order to be able to plan the use of the economic and financial resources to the benefit of the overwhelming majority of the population and no longer for the profits of the few. By nationalising the banks and agricultural industry we could also garantee cheap credit for small businesses and farmers and also cheap tractors and pesticides and fertilisers.

Such a program, of course, can never be put into practice by any variant of bourgeois government. Only a workers' and peasants' government, based on democratically elected councils (dewan) of workers, peasants, students, urban poor and small shopkeepers can guarantee this. A socialist federation of Indonesia would rapidly become an example for the other countries in the area realising a genuine, harmonious and democratic socialist federation of South East Asia.

Jean Duval
March 2000