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Wall Street Demands Austerity, Buys Up Wealth Of Indonesia

By Maurice Williams, in the Militant
Vol. 62, no. 3. 26 January 1998

During the second week of January a parade of officials from the Clinton administration and the International Monetary Fund (IMF) marched into Indonesia to squeeze the regime into implementing the IMF's "economic reforms." The imperialist emissaries are pressing Jakarta and other governments in the region to open their markets to foreign investors in order to buy up industries and banks on the cheap, deepening imperialist domination of the region. On January 14 President Suharto formally agreed to the IMF's demands.

U.S. deputy treasury secretary Lawrence Summers and State Department official Stanley Roth arrived in Jakarta January 12 and demanded that Indonesian president Suharto reduce fuel subsidies, cancel 15 infrastructure projects, close down 16 insolvent banks, and repeal limits on foreign ownership of property and financial institutions in exchange for the $43 billion loan arrangement the government made with the IMF last October.

IMF deputy chief Stanley Fischer had already held three hours of negotiations with Indonesian officials the day before, and U.S. secretary of defense William Cohen met with Suharto two days later. Cohen launched a 12-day tour to also visit Thailand, Singapore, China, Japan, and south Korea, to stress Washington's military power in the Pacific.

Adding to the pressure on Jakarta to bow to imperialist dictates, President Suharto received phone calls on January 8 from U.S. president William Clinton, and on January 12 from German chancellor Helmut Kohl, Japan's prime minister Ryutaro Hashimoto, and Australian prime minister John Howard urging Jakarta to impose the IMF austerity package. After the meeting with Suharto, U.S. deputy treasury secretary Summers remarked, "It is clear that President Suharto recognizes the need to take the strong steps of the kind under discussion with the IMF to create confidence."

Imperialist officials gave a "thumbs down" to Jakarta's "wildly unrealistic" 1997-1998 budget and its failure to push through sufficient austerity measures. The budget assumptions were based on the country's currency trading at 4,000 rupiah to the U.S. dollar, instead of its current exchange rate of some 8,000 rupiah to the dollar. Foreign investors are unwilling to accept the government's plan to pay interest for some $52 billion in loans based on 4,000 rupiah to the U.S. dollar, even though the budget projects a 57 percent increase in loan payments.

The rupiah has fallen 72 percent from its value one year ago, since a wave of currency devaluations that began last July and spread throughout southeast Asia. The lower value of the rupiah makes it impossible for most Indonesian companies to repay massive loans from U.S., Japanese, and European banks. Indonesia's total foreign debt is estimated at $133 billion, with many companies and banks failing to make payments. This includes the state-owned airline, Garuda, which missed two payments on aircraft loans in December totaling $8 million. The escalating debt burden had sparked rumors that the government would declare a moratorium on debt repayments.

Meanwhile, this nation of 200 million people has been hit by the worst drought in 50 years and famine conditions are spreading across eastern provinces. Unemployment is expected to rise by 50 percent, to at least 6.5 million workers.

Jakarta's budget included an increase in the country's petroleum subsidy, which reflects its nervousness over impending political and social instability. More than 60 percent of the rural population relies on kerosene for heat and light.

In a signal of the potential of Indonesian toilers to resist, 16,000 aerospace workers in Bandung went on strike last October and held mass rallies protesting threatened layoffs. "The government's primary concern is not the unhappiness of IMF emissaries but the possibility of social unrest," declared the editors of the Wall Street Journal January 9. "President Suharto may now believe that his only course is to increase spending on things like food and fuel subsidies to .. placate the masses who might be tempted to take to the streets."

A news article in the same big-business daily said that unnamed "analysts don't begrudge Indonesia for prioritizing social and humanitarian concerns, but they criticize the government for doing so without implementing structural economic reforms" -that is the IMF conditions.

A layer of the U.S. capitalist rulers, however, have begun a clamor for Suharto's resignation. "[Suharto] seems more of an impediment to reform," declared the New York Times January 11.

Others within Indonesia's ruling circles are openly calling for his ouster, including a section of the military. "It seems the only solution now is for the president to step down," said an unnamed senior armed forces officer. Suharto came to power in 1965 following a coup and bloody repression in which more than 500,000 workers were massacred.

Imperialists push to buy companies

As part of the IMF "reforms" imperialist bankers are demanding Indonesian enterprises pay their debts or sell assets. With their prices denominated in devalued currencies, many companies in Asia have become cheap in dollar terms. "We're looking at opportunities the likes of which we have never seen before in any Asian country," remarked Patrick Alexander, fund manager at Peregrine, the day before that Hong Kong investment bank collapsed.

In December U.S. senator Robert Torricelli declared that south Korea "is about to see a fire sale of some of its major assets."

Nutricia International, the Dutch food group, is bidding for Indonesia's largest baby food company.

The Korean Press Agency reported that General Motors (GM) is negotiating to purchase a stake in Daewoo Motors Co. "These currencies now are at incredibly low levels," said John Smith, chairman of GM, pointing to advantages for bosses looking to cut costs. "If there's an opportunity that presents itself because of the favorable cost position that some of these countries and companies might be in, we may be more than willing to take a look at it," he added.

The Ford Motor Co., GM, and two German enterprises, Robert Bosch and Sachs A.G. are reportedly interested in buying Mando Machinery, south Korea's largest manufacturer of auto parts.

Meanwhile, Indonesia's cheapened currency provoked the collapse of Hong Kong's Peregrine Investments Holdings Ltd., which went belly up January 12. Peregrine was the largest investment bank in Asia outside Japan and its collapse has resonated throughout the business world, including the United States.

Last summer Peregrine lent $260 million in U.S. dollars, a third of its capital, to Steady Safe, an taxicab company in Indonesia. When the value of the rupiah plummeted, Steady Safe was unable to repay the loan and Peregrine's stock plunged to about three cents per share.

Peregrine finally went under after it failed to clinch a deal with an investor to replenish the company's capital. The Zurich Group of Switzerland backed out of a deal to put up $200 million for a 24 percent stake in the company when one of Peregrine's main bank creditors, First Chicago, declined to put $25 million into the investment bank. Last June Peregrine reported handsome profits for the first six months of $82.5 million on revenues of $19.6 billion.

Peregrine's bankruptcy signals a deepening financial crisis in Hong Kong that could lead to ending its currency peg to the U.S. dollar. With the value of some Asian currencies dropping by 70 percent, business analysts assert that the Hong Kong dollar is vastly overvalued. "The fall of the peg could lead to a banking and property collapse in Hong Kong," said Ma Guonon, head of economic research at Salomon Smith and Barney.

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