Transnational Research Associates
In recent months, the news media have reported extensively on the disruptions and uncertainties associated with the events in Asian money markets and financial circles. Although as many as ten nations have been directly affected by this series of insolvencies, bankruptcies and emergency bail-outs, the purpose of this report is to examine the magnitude of the impact of this crisis on the Chinese Business Community in Indonesia.
This influential community suffered greatly during the Asian crisis which first began in Thailand, moved through Malaysia, and swept into Indonesia last Fall. Not only were Chinese businessmen and their families physically attacked, but they lost all of their assets, as well as their hopes and dreams for the future. Before delving, however, into some of the consequences of the crisis in Indonesia and its significance for the Chinese throughout the archipelago, it would be wise to review the basic demographics of the Chinese Community in this tropical island nation.
The Chinese Community represents up to 35% of Indonesia's urban population and business base (The Economist, July 26, 1997). Over the years, because the Chinese have been denied political rights in Indonesia, they have concentrated their efforts on building businesses and earning money, mostly in Jakarta. As their assets grew, Indonesians were not able to keep pace with their Chinese counterparts. Many Indonesian businesses were indebted to wealthy Chinese entrepreneurs and bankers. Large factories, such as pharmaceutical plants in Surabaya, a city to the east of Jakarta, were owned by Chinese who had financial connections overseas. The breadth of Chinese influence was vast.
As the wealth of the Chinese minority increased, the Indonesians became more aware of the discrepancy between their assets and those of the high-profile Chinese. When events in Thailand and Malaysia began to affect Indonesia, the first anti-Chinese violence broke out in Jakarta. Chinese businessmen were ambushed on the road to the airport and often beaten or killed. The Indonesians were angry at the accumulation of wealth among the Chinese. They were suddenly aware of their own vulnerability and their country's economic collapse, which they blamed on the Chinese, as much as on their own government (SCMP, September 5, 1998).
When the Suharto government was forced to continue devaluation of the Rupiah, tension mounted (SCMP, September 10, 1998). Pressure was increasingly placed on the Chinese community, and their interaction with other Chinese businessmen in Taiwan, Singapore and Hong Kong came under heavy criticism. Under these circumstances, laws were not always honored, and large numbers of Chinese lost their businesses and homes due to actual violence and unfair political decisions against them.
It is difficult to measure the exact extent of the damage done to the Chinese community in Jakarta and other cities. However, many accounts, notably IMF reports and newspaper articles, confirm that losses were substantial (IMF World Economic Summary, May 1997; Zaman, 1998; SCMP, September 14, 1998). The losses extended upward into state-owned banks, affecting everyone, not just the Chinese (Zaman, 1998). So the IMF and other world financial agencies are currently attempting to convince financial leaders to change their wealth-distribution policies.
According to the Zaman article (1998), ten percent of outstanding loans in Indonesia were non-performing as late as Fall 1998. To make matters worse, the total foreign bank debt of Indonesia is 36% of the country's gross domestic product (GDP). Much of this debt is short-term, causing disruption in the local economies of Indonesia's large industrial centers. Money is being drained from the people to pay huge outstanding debts (interest and principal) to banks. The Chinese are affected negatively by these dynamics.
To defend itself, the Suharto government enacted emergency legislation which penalized the Chinese heavily. Taxes, seizure of assets and freezing of bank accounts, among other actions, occurred (SCMP, September 10, 1998). These overt actions began to appear discriminatory and protests from the Chinese community in Indonesia and outside the country began to surface. Special Reports in the South China Morning Post, The People's Daily, and other major media outlets defended the business activities and the rights of the Chinese and heatedly criticized the reaction of the Suharto government (SCMP, September 23, 1998). But, of course, the situation was bad for everyone. One glance at reliable economic data published in professional sources demonstrates the seriousness of the Indonesian, and Asian, banking crisis (World Development Reports, 1995-1998).
Clearly, there are implications for the "long-term" in Indonesia, particularly with respect to the attitudes of the majority population toward the minority ethnic Chinese in urban areas. The simmering emotions of the last six months are not likely to dissipate. Andi Wuisang, a Christian spokesperson, said that the combination of religious and economic friction in Indonesia is volatile and will last quite a long time (Strafor 1999). These types of observations are leading several specialists to believe that the crisis will adversely affect confidence in the foreseeable future, that is to say perhaps throughout the next decade. Nonetheless, there is some hope that the level of inter-ethnic trust can be rebuilt, in spite of this on-going hostility (SCMP, September 16, 1998). Banking, political and religious leaders are negotiating settlement of many issues that are now separating the primary ethnic groups in Indonesia. The Economist (July 26, 1997, 41-42) has expressed guarded optimism, but foresees storm clouds on the horizon insofar as real economic stability is concerned. Either partial solutions or temporary solutions are feasible; permanent resolution may, however, be impossible. The whole banking structure may have to be revamped before even semi-permanent economic security is achieved (The Economist, July 26, 1997, 41-42).
Several of the reporters and financial analysts consulted, appearing largely in the South China Morning Post and in The Economist, agreed that the prognosis for Asia, inclusive of Indonesia, is uncertain. While the riots and urgent "economic deficiencies" may abate, there are underlying factors which will continue to intensify the instability in in-country Indonesian-Chinese relations. "Special Reports" in the Morning Post confirm the foregoing, but also reflect a range of opinions originating from Hong Kong (SCMP, September 14, 1998).
The Chinese community in Indonesia has always prospered. This major set-back will temporarily upset their plans for growth. However, Chinese leaders in Jakarta are willing to work with the post-Suharto government in order to ensure relative, short-term stability for the entire country. While it is true that there is a power struggle occurring in the nation's capital, the Chinese are realists and recognize their place in the overall scheme of socio-political solutions. They acknowledge that repair of the social fabric is ultimately possible. The history of violence and chaos in Indonesia, such as the Aceh Wars and the purges of Communist masses during the Sukarno Revolution, should not affect the next century's development patterns in Indonesia (Ricklefs, 1993). There may be some momentary erosion of trust, but good inter-class and inter-ethnic relations are, in my opinion, still possible.
Observations expressed in pertinent research articles, notably those used in preparation of this report, indicate that financial recovery is not going to occur soon. The IMF, The World Bank, The Asian Development Bank, and private banking consortiums are currently in the process of negotiating strategies and options. They hope to resolve the complex nature of this problem. It has been noted by these institutions, and other observers, that, with possible sections of Indonesia breaking off into Independent States (Timor and Aceh), perhaps it will be possible for the Chinese ethnic community to re-establish a good relationship with these (potentially) newly independent sections of Indonesia, and use the good relations thus generated to strengthen ties with the rest of Indonesia and its population (SCMP, September 5, 1998). Skeptics note that this may be difficult because the power-base is in Jakarta. Indeed, the geographic complexities of Indonesia must also be calculated when devising an effective solution to the internal crisis, a crisis affected, of course, by external dynamics over which the nation may not have meaningful control.
Given the foregoing thoughts, both "financial recovery" for the nation and "lasting peace" between the Indonesian and Chinese communities are definitely possible, but will require much work, planning and joint effort to achieve.
REFERENCES
Historical Text:
Ricklefs, M.C., A History of Modern Indonesia since c. 1300, Second Edition, Stanford University Press, Stanford, California, 1993.
Current Periodicals:
Brauchli, M.W. , "Speak No Evil: Why The World Bank Failed to Anticipate Indonesia's Deep Crisis," Wall Street Journal, July 14, 1998, A1, A10.
Zaman, R., "The Causes and Consequences of the 1997 Crisis in the Financial Markets of East Asia", The Journal of Global Business, Fall 1998, 37-43
.................., "A Survey of Indonesia", The Economist, July 26, 1997
.................., "Currency Breaks 1200 Level as Fresh Unrest Hits Indonesia", South China Morning Post, September 10, 1998.
.................., "Enraged Mob Runs Riot in Sumatra", South China Morning Post, September 9, 1998.
..................., "Foreign Minister Ali Alatis Defends Indonesian Human Rights and Democracy", South China Morning Post, September 23, 1998.
..................., "Indonesia Ethnic Tensions", South China Morning Post, September 5, 1998.
.................., "Insolvent Banks Will Survive, says Ibra", South China Morning Post, September 14, 1998
.................., "Jakarta Scrutinises Pledges on Debts", South China Morning Post, September 23, 1998.
..................., "Koo Seeks Openings as Region Bends to Crisis", South China Morning Post, September 16, 1998.
.................., Strafor's Asian Intelligence Update, 2:7, January 12, 1999.
.................., "Tang Jiaxuan urges Jakarta to Punish Severely Anyone Involved in the Killing and Raping of Ethnic Chinese During Riots in Jakarta in May", South China Morning Post, September 5, 1998.
Documents:
..................., World Development Report, The World Bank, Washington D.C., various issues.
..................., World Economic Summary, IMF, Washington, D.C., May 1997.