Analysis: Indonesia's anaemic revival

Street protests have become commonplace in Indonesia

By Andrew Walker

President Wahid has come under intense criticism for his leadership and the failure to generate a convincing recovery from the Asian financial crisis.

Indonesia was worst-hit by the Asian financial turmoil which saw its economy shrink by 13% in 1998.

He has gained a reputation for arbitrary behaviour - sacking ministers without a decent explanation - and he frightened the financial markets with loose talk of capital controls

The International Monetary Fund (IMF) came to Indonesia's rescue with loans and a programme of economic policy reforms.

Mr Michel Camdessus was the IMF's Managing Director at the time.

"In expressing my confidence in the success of this programme, my thoughts go to those who may experience hardships, hopefully for only a short period of time, because of the very strength and rapidity of the adjustment process," he said.

Many Indonesians did experience severe hardship, but Mr Camdessus' confidence has not been proved right.

Student protests led to the ousting of President Suharto

Some of them took to the streets to be met with gunfire from the security forces.

The protests were partly about political rights and partly about living standards.

Although there is some evidence of an economic recovery, it is feeble compared to other Asian crisis economies and it has not delivered on living standards.

"The agriculture sector, where many people generate their livelihoods has quite a few problems," says Leo Abbruzzi of the Economist Intelligence Unit. "Some improvement yes, the economy is growing. But we are still some years away from living standards returning to where they were in say 1996 or 1997."

Political change

The unrest helped deliver political change, the end of Mr Suharto's leadership and an elected President Abdurrahman Wahid.

The new cabinet was sworn in and the new president had a clear priority.

"The primary task is to have a cabinet that will do whatever it thinks best. That means that we have to make economic recovery our first goal, our primary goal," President Wahid promised.

That goal has been badly missed. And critics say that President Wahid's own conduct has made contribution to that failure.

President Wahid's government has yet to deliver on promises

He has gained a reputation for arbitrary behaviour - sacking ministers without a decent explanation - and he frightened the financial markets with loose talk of capital controls.

"As a foreign investor, it is looking very worrying," says Edward Goodchild, fund manager at Foreign and Colonial Emerging Markets in London.

"We do actually have money invested there at the moment but I have to say we are exercising a huge amount of caution. We are not looking to add at the moment."

Indonesia's problems are not just political; there are real economic issues that are not being properly tackled.

"The place where reform really needs to happen is within the banking sector. But it is not working as a credit system. And without it working as a credit system, that doesn't allow either domestic consumption to pick up, nor does it allow Indonesian companies to expand," says Edward Goodchild.

Indonesia has plenty of economic problems, most of them shared with the other countries hit by the Asian crisis.

But those others have a more stable political scene and have made a more credible effort at grappling with economic reforms - and their recoveries too look a lot more convincing than the anaemic revival underway in Indonesia.