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International Socialism, September 1998


Chris Bambery

Report from Indonesia


From International Socialism 2:80, September 1998.
Copyright © International Socialism.
Copied with thanks from the International Socialism Archive.
Marked up by Einde O’Callaghan for ETOL.


The scale of the crisis which has overwhelmed Indonesia is enormous. The Indonesian government’s statistics bureau predicts that almost half of the nation’s more than 200 million people will be below the official poverty line by the end of 1998. The World Bank estimates it will be at least 2005 before per capita income recovers to its pre-crisis level. [1] Redundancies are mounting. The PT Toyota Astra Motor company has cut its workforce from 7,000 workers to just 2,500. Before the financial collapse Toyota Astra produced about 7,000 Kijang cars, Indonesia’s most popular and least expensive cars. Car sales fell by 95 percent in June, from 38,733 cars sold in the previous June to just 1,833 this year. [2] Inflation in July 1998 was running at 56.7 percent according to government figures. It was forecast to reach 80 percent before the end of the year. On 1 August this year the Ministry of Manpower announced it would increase the minimum wage by an average of 15 percent. This was the first such increase since April 1997 – before the collapse of the economy, before the rupiah collapsed and the soaring inflation that followed.

This is the background to the student protests which began in March when Suharto was re-elected president by 1,000 hand picked delegates at the People’s Consultative Assembly and Golkar, Suharto’s personal political machine, ensured B.J. Habibie’s appointment as vice-president. It is also the background against which we must judge the stability of Habibie’s government.

The May 1998 uprising of the urban poor remains as a reminder of the discontent which lies beneath the surface. On the road into Jakarta from the airport, two months after the riots, banks and car dealers remain boarded up. In the far south of the city the skeleton of a burnt out department store looms up into the night sky while further on stand the ruins of a bank. The governor of Jakarta reported that 4,940 buildings were damaged, burned down or looted. These included 4,204 shops, shopping malls, restaurants, car workshops and more than 500 bank offices. The Indonesian Retail Merchants Association estimated retail stores would lose 600 billion rupiah (US$60 million).

The Indonesian government estimated losses from damaged property in Jakarta alone at 2.5 trillion rupiah (US$350 million). The Pertamina oil company suffered damages of 1.5 billion rupiah, including damage to 12 petrol stations. The National Logistics Agency claimed that 1,800 tons of sugar and 500 tons of rice owned by the agency had been looted. Fourteen police posts were badly damaged in the riots. Three days of rioting left around 1,200 people dead. [3]

The rebellion of the urban poor was the decisive turning point. Panic swept the ruling class. A dozen US companies, including American Express, Boeing, Citicorp, Nike, Mobil, Mattel and McDonald’s, shut down their offices in the capital. Mattel closed down two plants making Barbie dolls employing 7,000 and evacuated 100 staff from the country. On the Wednesday night after the riots the minister of security and armed forces commander, General Wiranto, visited Suharto’s mansion to deliver a message from the Indonesian armed forces (ABRI) asking him to resign. The generals had reached their decision that afternoon.

Habibie’s authority always depended on Suharto. He does not have a significant, independent political base. Prior to being appointed vice-president by the ousted dictator, he was president of the state owned aircraft manufacturer, PT IPTN, and the state owned shipyard, PT PAL. The industries under his control were targeted as among the most wasteful by the IMF. After being appointed vice-president, Habibie had his son replace him as president of PT IPTN. An opinion poll quoted in the Jakarta Post found that 46.42 percent of those asked found Habibie was acceptable but just 1.1 percent found him very acceptable. This poll gave a snapshot of middle class opinion. It means there is no large popular base for Habibie.

More importantly, it is common for people to describe Habibie as being Suharto’s puppet. They think that the former dictator still pulls the strings. The ABRI operates as both the military and the civilian authority in the country. But in addition it controls key sectors of the economy. For instance, it has a major interest in plantations producing sugar, rice, palm oil and other crucial commodities, and each of its component parts – the army, navy, air force and police – have co-operatives operating in various business sectors. The Indonesian Co-operatives Council is actually dominated by representatives of ABRI owned co-ops. Beyond the military, the ruling Golkar apparatus continues to dominate the Habibie government.

But there are tensions apparent within the armed forces. At the beginning of August the commander of ABRI, General Wiranto, removed Lieutenant General Prabowo Subianto and Major General Muchdi Purwopranjoyo from their posts. These two commanders were suspended from their posts pending a probe into their role in the abduction and torture of democracy activists. Prabowo is Suharto’s son-in-law and until March this year he headed the elite special force Kopassus, which was responsible for the kidnappings. His replacement was Muchdi. They and ten other officers of this elite unit will face a specially convened military tribunal which was set up a day after US defence secretary William Cohen visited Jakarta. Cohen and Bill Clinton’s foreign secretary, Madeleine Albright, have all urged that ABRI should be reformed.

Suharto remains in Jakarta, living in his upmarket home in Menteng, central Jakarta. On 3 August the Austrian business daily Wirtschaftsblatt reported that Suharto had moved billions of US dollars to Austrian banks shortly before his resignation. This followed reports in the US business magazine Barrons quoting David Hale, the chief economist at Switzerland’s Zürich Insurance, to the effect that Suharto had moved US$8 billion to Austria from Indonesia. According to Forbes magazine’s rankings of the world’s richest billionaires, Suharto amassed stakes in about 3,200 Indonesian companies during his 32 years in power and had a family fortune of US$4 billion. Other Indonesians included in the list were Eka Tjipta Widjaja of the Sinar Mas Group who was worth US$4 billion; the Wonodjojo family who own the Gudang Garam Group who were worth US$2.1 billion and Liem Sioe Liong of the Sudono Salim group who was worth US$1.7 billion. [4]

Meanwhile there is little sign that the economic crisis has bottomed out. The country’s private sector foreign debt stands at US$84 billion. The public sector debt stood at US$54 billion in May. These figures rocketed following the 80 percent depreciation in the value of the rupiah. Following a deal brokered in Frankfurt in June the debt was rescheduled. But two months later no company had signed up with the new Indonesian Debt Restructuring Agency. The real issue will come when negotiations open between individual firms and their creditors. A senior analyst at a foreign investment bank in Jakarta explained:

The debt deal struck in Frankfurt is largely meaningless. Companies simply cannot pay, even under the terms agreed in Frankfurt. Creditors must realise they have no option but to write off a lot of their loans, try to come to an agreement with companies that can be salvaged, and get back what they can.

The World Bank in its latest report on Indonesia admits the bulk of Indonesian owned firms are being literally crushed under a massive burden of external and domestic debt. [5] Indonesia is among the world’s leading exporters of tin, copper, nickel, gold, coffee, cocoa, tea, palm oil, coconut oil, rubber and plywood. But against that the country has to import rice, wheat and sugar to feed its 200 million population. This year Indonesia is set to import a record 5 million tons of rice. [6] In the wake of Suharto’s fall, the head of Asia Pacific research at CIBC in Singapore said, ‘Aside from political reforms the economy is going to be the one that is much harder to turn around and it’s going to get a whole lot worse before it gets better.’ [7] Economist Sri Mulyani from the University of Indonesia told the Jakarta Post, ‘There is a feeling that political support for President B.J. Habibie and his government is so thin that he cannot launch an adequate agenda for political and economic reform.’ Regarding the immediate economic outlook she warned:

Indicators like inflation and employment show that the economy has not reached the bottom of the crisis. It’s now very difficult for us to stop the economy from deteriorating even further because of the government’s negligence when the crisis first broke. Habibie has sent out conflicting signals. For example, he said he would eradicate corruption, collusion and nepotism but he has not yet introduced any legislation to achieve this end. Abolishing such practices is very important because they are merely the tip of an iceberg of structural problems that include a poor bureaucratic system, an excessively close relationship between the government and business, and the societal role played by the military. These structural problems drove Indonesia into the current crisis. [8]

A snapshot of the situation in Indonesia is provided by a glimpse at news reports on just two days in late July.

On 22 July the new government of Habibie announced it will give Suharto over US$2 million as a housing allowance. On the same day farmers seized the headlines worldwide by invading a golf course near Jakarta and planting seed before being evicted by riot police. On 23 July the Jakarta Post reported 12 democracy activists had been abducted and tortured by an elite military unit. In the same issue it reported that 800 pharmaceutical workers in Tangereang in Jakarta had struck for union recognition and reinstatement of their factory representative. Meanwhile the headline on the front page announced that ‘Tycoons Support Habibie’.

During the May protests the leaders of the student movement used the term reformasi, reform, in an effort to find a term acceptable to the government and the ABRI. But what they were actually demanding was something stronger than mere reform. The slogan ‘reformasi’ was never defined and so it has taken on very different meanings for different sections of the population. The Habibie government seeks to cloak itself in the slogan. For instance, the government called on people to grow more vegetables. But that statement was cited not just by the farmers who ploughed up the golf course but by others of the rural and urban poor who grabbed vacant land earmarked for luxury housing developments. Every day there are official statements bemoaning the thefts taking place from shrimp farms near the capital. On 17 July President Habibie opened a market in central Jakarta selling cheap food and other goods to the poor. He bought a pair of shoes worth US$3.20 claiming that while he once bought expensive imported shoes he has now cut back because of the financial crisis. Within an hour of Habibie leaving, the poor simply walked off with all the cooking oil on offer. Two weeks later 100 people seized a 3,000 square metre site in east Jakarta earmarked for luxury housing in order to plant vegetables. The land was owned by the state. A spokesman for them said, ‘Most of the people intending to grow vegetables work as mikrolet [minibus] drivers or have no job at all. It’s better for us to be involved in such a project rather than killing our time by playing cards or stealing amidst the crisis.’ [9]

A process of polarisation is now developing among those who seemed to stand together against Suharto in May. Mochtar Mas’oed, a lecturer in political science at Gadjah Mada University in Yogyakarta, explained:

In rural areas reform is even misunderstood as disobedience toward the authorities. Thus the word reform has become meaningless in line with the changes in the political situation, while pro-reform activists who were united by the common issue of leadership succession, have disintegrated following the downfall of Suharto on 21 May. It is very difficult now to unite them because each of their factions has its own agenda and priorities.

At the time of the student occupation of the parliament buildings there was a sense of elitism among the student leaders that somehow their protest was dignified and peaceful, unlike that of the urban poor, and a sense too that the students were being feted by the media and by sections of the ABRI leadership. But a process of polarisation began as soon as the dictator was removed. When Suharto fell, student supporters of Rais welcomed Habibie’s appointment on the grounds that he was a good Muslim. The chair of the Association of Muslim Students, Anas Urbaningrum, stated:

We should give Habibie a chance. Let him prove that he can solve the problems of the country. We should not judge him before giving him a chance.

This contrasted with the mood among other activists. A student at Bina Sarana Informatika told the Jakarta Post, ‘We reject Habibie. We want Suharto’s regime to be purged from this nation.’ Another student at Jakarta Economics Academy said, ‘He can’t rule the country as Suharto is still behind him.’ [10] As the universities return in August this debate will intensify.

The most popular figure in Indonesia is undoubtedly Megawati, the daughter of the former president, Sukarno. Yet she played a very cautious role during May and did not rush to place herself at the head of the protests. That allowed Suharto to hand over office to Habibie. But the fact that Megawati did not capture the movement in the way that Cory Aquino did over a decade ago in the Philippines poses problems in the long term. In many ways a quick political revolution in which Suharto was replaced by someone like Megawati might have prevented a process whereby demands for political and economic change increasingly merge. That is now under way in Indonesia. Democracy and reformasi were held up as the solution to millions of people. But these slogans have taken on a life of their own for millions of workers, and urban and rural poor.

The Islamic movement is also split. The most high profile figure is Amien Rais who publicly supported the student protests when it appeared they might succeed in toppling Suharto. Rais’s Muhammadiyah organisation claims 28 million members. But Rais welcomed the appointment of Habibie as Suharto’s successor claiming Habibie was a good Muslim and was a personal friend. Rais had been purged from the leadership of Indonesia’s official Islamic movement by Suharto but was reappointed by Habibie. In early August Rais stated he would be prepared to run for the presidency. But immediately afterwards thousands of people in East Java, many armed with knives, sticks and iron chains, blocked a planned visit by Rais to the city of Surabaya. ‘We are ready to kill Amien Rais if he dares enter Pasuran. We need food, not politics’, declared one student leader from an Islamic religious school who was blocking a road in Pasuran, 40 miles south of Surabaya. [11]

Many on the left will see Suharto’s departure as representing the fall of just another dictator – comparable to Marcos in the Philippines or Duvalier in Haiti. Others will recall that in the 1970s in Spain, after 50 years of fascism, Spanish capitalism was able successfully to make the transition to bourgeois democracy following Franco’s death – despite the fact that many on the far left had ruled out that possibility. But the crisis in Indonesia takes place against an economic crisis which in terms of its depth is nearer to that of the 1930s. The replacement of Suharto by Habibie helped diffuse the protests in the short term. But in the medium to long term the presence of Habibie and the continuing rule of the ABRI can generate wider instability. The demand that Suharto is put on trial and that the wealth he and his family accumulated should be confiscated is very popular.

On a wider level any attempt to disentangle the ABRI from the administration of the country will confront the fact that the armed forces control large segments of the economy. The US and the liberal middle class agree that the ABRI should adopt a simple military role. But achieving that will not be easy. All of this means that fresh protests can quickly radicalise. The student protests acted as the detonator for the revolt of the urban poor. That revolt terrified the ruling class. Working class struggle is developing less spectacularly but it is growing both in militancy and in scale. And there is no absolute gap between the working class and the urban poor. Many workers have found themselves socially marginalised by the economic crisis. The urban poor are not homogeneous. Sections of them can be attracted to ideas like those of Islamic fundamentalism or to anti-Chinese racism. But the working class is in a very strong position to forge real unity. In the meantime a process of polarisation and debate is likely within the universities.

The liberal bourgeoisie and the middle classes talk as if bourgeois democracy can solve the economic crisis, and to many the corruption and nepotism of the Suharto clan was a powerful factor in causing that crisis. But even if Indonesia could move to a form of parliamentary democracy it would do nothing to staunch an economic crisis which is growing in scale across the region. The Indonesian bourgeoisie clearly know that a recession in Japan carries serious implications for Indonesia. Small groups of socialists, often originating from Marxist discussion groups, have the possibility of shifting to mass agitation in the workplaces, among the urban poor and in the campuses. That will require political clarity, professional organisation and the creation of a revolutionary press. The coup in 1965 broke the continuity of Indonesian working class organisation. The most powerful effect of the May 1998 revolution would be to reawaken the heroic tradition of the Indonesian working class and to create a fresh generation of revolutionaries.


1. Business Day, 5 August 1998.

2. The Indonesian Observer, 5 August 1998.

3. Jakarta Post, 5 August 1998.

4. Forbes, 6 July 1998.

5. The Indonesian Observer, 5 August 1998.

6. Jakarta Post, 18 May 1998.

7. Jakarta Post, 22 May 1998.

8. Jakarta Post, 5 August 1998.

9. Jakarta Post, 5 August 1998.

10. Jakarta Post, 22 May 1998.

11. The Indonesian Observer, 5 August 1998.

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