Aid for people, not for Suharto!

By Max Lane

In response to media questions on the morality of the government's promised US$1 billion loan to the Suharto regime, PM John Howard claims the money is for the Indonesian people -- not the Suharto family.

The loan has become controversial only because Pauline Hanson, the racist MP for Oxley, attacked the government for propping up žquestionable and militaristic regimes with appalling human rights records.

The position of the so-called Labor žoppositionÓ was exactly the same as the government's, making it easy for Hanson to launch a demagogic attack. Of course, Hanson wants to stop all foreign aid to poor countries and refuses to acknowledge that rich countries' exploitation is the main reason for Third World poverty.

Howard's response that the IMF loan is for the Indonesian people, not the regime, contradicts the facts.

Foreign capital
The most significant immediate beneficiaries will be the international, including Australian, banks and the major multinational corporations operating in Indonesia.

Indonesia's total foreign debt is approximately US$110 billion, at least US$60 billion of which is owed by Indonesian private corporations. Much of this debt is owed to South Korean and Taiwanese banks.

The package, which amounts to a staggering figure of more than US$30 billion from the IMF, World bank, Asian Development Bank and other sources, promises to increase this debt to US$140 billion plus.

The Indonesian government must pay huge amounts of interest to the big US, European and Japanese banks every year. These interest payments will leap again in the next few years, eating into funds that should be used for improving the lives of ordinary people.

On top of the interest payment bonanza for the banks, Suharto has been forced to open up the economy even further to foreign multinationals.

Suharto and his cronies inherited an economy in 1965 whose major companies had been almost 100% nationalised by the previous Sukarno government. Since then there has been a staged, though uneven, process of privatisation.

A major aspect of economic policy-making during this period has been the struggle between Suharto's crony robber barons, as they strive to expand their empires, and foreign multinationals as they strive to maximise their portion of the Indonesian economic cake.

The last concession Suharto was forced to make was during the economic downturn of 1993-94. A deregulation package was introduced, expanding the sectors of the economy that were opened up to foreign investment without it needing to be in the form of joint ventures.

This time around, restrictions have been lifted on foreign multinationals distributing and selling their products in Indonesia. Previously, foreign manufacturers had to deal with the domestic market through Indonesian intermediaries.

This is a major concession to the big multinationals, which will enable them to start to dominate the market from manufacture right through to the point of sale, potentially squeezing out Indonesian capitalists.

Foreign manufacturers dominate in textiles, garments, electronics, many light manufactures and even such areas as tea processing and food processing.

The government is reducing export duties and related costs for foreign multinationals producing iron and steel, automotive components, machinery and machinery components, jewellery, chemicals, rubber, mineral products and plastic sheets.

This increases the profits of foreign exporters while reducing government revenue, which in turn increases pressure to cut government expenditure.

Suharto and conglomerates
So far, the Suharto family's interests and those of the other 40 or so big conglomerates have had to make only minor concessions.

The main concessions have been Suharto's agreement to the closure of 16 banks, three of which are banks in which Suharto family members, including one of his sons, an uncle and a brother, own substantial shares.

One son, Tommy Suharto, head of the massive Bimaputera group, is already complaining of political victimisation and threatening to sue those cabinet ministers who were part of the Indonesian team negotiating with the IMF.

The squealing by Tommy and other family members provides a good smokescreen (though, no doubt, they are genuinely losing from the deal) for the fact that the Suharto family and their cronies remain firmly in control of the commanding heights of the economy.

No amount of žderegulationÓ or privatisation can dislodge these interests. Any state-owned companies privatised or any government-instituted monopolies that are abolished can immediately be swallowed up by the cronies precisely because they are the companies which have the funds to buy privatised companies or dominate certain markets. Their only real competitors are the foreign multinationals.

In addition, Suharto has managed to find ways to soften the žderegulationÓ being sought by the IMF with regard to key monopolies.

A key Suharto crony, Sudoma Salim, dominates wheat flour production and import. Indonesia is south-east Asia's biggest importer of wheat flour, used for noodles.

Under IMF pressure, the Suharto government has announced that its monopoly on importing wheat flour, which it could use to influence prices, has been abolished. However, this has been replaced with a government monopoly on distributing wheat flour, and the government is still guaranteeing to subsidise prices to the millers. Furthermore, while the import monopoly has been abolished, a 20% tariff has been introduced.

A question remains as to how much of the billions will eventually be used or indirectly fund bail-outs of major conglomerates which have trouble in repaying US dollar debts to other foreign banks.

Costs to the people
The Indonesian people, especially the urban poor, have already begun to feel the economic crisis. Even before the IMF package, prices of basic commodities such as kerosene, paper products, cooking oil and electricity had started to rise. In some of the more remote provinces, there have been big rises in the price of rice.

It is now expected that further price rises will take place as the higher cost of imports flows through the economy, combined with an end to the subsidies and government monopoly on basic foodstuffs such as soybean and garlic.

Indonesia still imports many foodstuffs: in 1996, it imported 2.5 million tonnes of rice, 400,000 tonnes of sugar, 600,000 tonnes of corn and 700,000 tonnes of soybeans.

The IMF package commits the government to a balanced budget over the next few years. While the costs of all imports are rising, the government is forfeiting revenue from the export sector. Tax revenue will also fall as overall growth drops dramatically.

Where the government is giving up control over key imported commodities, the pressure will be on to cut subsidies on basic commodities.

The price rises will hit not only poorly paid workers, often earning less than US$3 per day, but also the rural poor.

Despite improvements in some agricultural techniques, Indonesian agriculture remains backward in many sectors because of the predominance of millions of farms of less than half a hectare. Because of the low level of mechanisation, productivity is low.

Even official figures indicate the purchasing power of peasant farmers has risen only 0.5% per year over the last 10 years -- and this was starting from an extremely low level. Many of these farmers do not ever own much more than a pair of pants, not even shoes.

One price the government is keen to keep stable is rice. Instability in this commodity would provoke nationwide mass unrest. Despite IMF pressure, the government has retained its monopoly on rice distribution.

Massive sackings have already had an impact on the urban poor. Building construction has stopped on some sites because contractors can no longer afford imported construction materials. An official of the Indonesian Real Estate Council stated that 40,000 workers have already been dismissed and that it expects another 190,000 will be dismissed by December.

Some 25,000 people are expected to lose their jobs in the 16 banks being liquidated. Many major companies are on the verge of bankruptcy, some, like Merpati airlines, already going under.

The internet news magazine SiaR has quoted Indonesian business spokespersons estimating that up to 2.5 million Indonesians will be thrown out of work in the coming months.

So much for the billions from US, Japan and Australia helping the Indonesian poor!

Green Left, November 12 1997

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