Doug
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for <lbo-talk at lists.panix.com>; Fri, 15 May 1998 10:30:28 -0700 (PDT) Message-Id: <v04003a01b182254ff203@[128.32.105.161]> In-Reply-To: <3.0.1.32.19980515114117.00ace28c at jhuvms.hcf.jhu.edu> Mime-Version: 1.0 Content-Type: text/plain; charset="us-ascii" Date: Fri, 15 May 1998 10:42:53 -0700 To: lbo-talk at lists.panix.com From: Brad De Long <delong at econ.Berkeley.EDU> Subject: Re: Indonesia
>Does anyone (Doug?) have any information of what is actually going on in
>Indonesia. The official transmission belts (aka media) are notoriously
>unreliable, and they focus thier coverage along the lines of "angry mob
>looting the sacred cow of capitalism - private property." I think it was
>Noam Chomsky who graphically demonstrated the media bias on Indonesia
>reporting by actually measuring the volume of the Mossad Information Agency
>(aka New York Times) coverage and juxtaposing it with their coverage of the
>alleged "communist attrocities."
>
I think that the New York Times is still *way* *behind* on its coverage of
Stalinist atrocities. Recall their lines during the 1930s on Stalin's
Russia and during the 1970s on Mao's China...
Suharto. Tyrant seated on a throne of skulls. Killed 500,000 Communists, suspected Communists, ethnic Chinese-Indonesians who it was to someone's advantage to claim was a Communist, random ethnic Chinese-Indonesians, and so forth--plus another 200,000 dead in East Timor over the past two decades. Supported by the United States in one of our not-very-smart exercises in realpolitik on the grounds that someday Indonesia might be a useful ally against China should China turn expansionist and imperialist.
Suharto. Corrupt as Mobutu. The line in expatriate circles in Jakarta for decades was that his wife's name, Tien, was short for "Tien percent."
Suharto. Who has presided over a quadrupling of Indonesian real GNP per capita. Some of this was the result of the OPEC oil boom of the 1970s--but in other high-population OPEC producers like Venezuela and Nigeria, the political dynamic set in motion by the oil boom ended up making the country poorer than had it never had any oil at all. Suharto deserves some "objectively progressive" points for not following the path that has in Nigeria led to General Abacha.
Suharto. Who has presided over a *sharp* rise in income and wealth inequality--but even so, estimates I have seen suggest that the average working-class Indonesian today has about twice the material standard of living of his or her counterparts forty years ago (and the average upper-class Indonesian today has perhaps ten times the material standard of living of his or her counterparts forty years ago).
Suharto. Who lacked sufficient control over his country last year to fulfill the promises he had made about stopping the burning and deforestation that created the southeast asian smog of 1997.
The IMF. Which is trying to *loan* Indonesia $43 billion so that the sudden wave of domestic and international capital flight does not send the economy into a deep depression, but only into a shallow recession. The problem is that the IMF is not a grant but a loan-making organization, so that it wants its $43 billion back *with* *interest* in time for it to loan it out again to someone else facing a panic wave of speculative capital flight in two or three years when the next international financial crisis hits.
Thus as a result the IMF's policies--the conditions that it imposes on you if you want to borrow $43 billion--are crafted with an eye toward, first, making sure that the borrower country will repay its loan in two or three years. This means that the IMF wants to see, first, an export surplus against which loan principal and interest payments can be charged--and thus needs to see a fall in domestic demand (and a rise in domestic unemployment) and a fall in the exchange rate (and thus a sharp rise in the domestic-currency price of internationally-traded staple goods like rice) in order to diminish imports and boost exports and create the export surplus to repay the loan.
Only after it is sure that the recommended policies will be sufficient to guarantee repayment does the IMF turn its attention to trying to make sure that economic growth in the borrower country resumes as fast as possible.
If you ask Stanley Fischer why the IMF thinks that loaning $43 billion to Indonesia for two years would do any good--or would do more good than simply having Indonesia suspend payments and repudiate its debt--he will point to the contrast between Mexico after its 1982 debt crisis and Mexico after its 1994 exchange crisis. After the first suspension of payments and partial repudiation, it took seven years before GDP per worker reattained its old levels and began to rise. After the second IMF loan and Exchange Stabilization Fund loan rescue, it took only one year for Mexican economic growth to resume. The distributional consequences of both crises were bad--but I have seen nothing to suggest that the distributional consequences were worse the second time than the first.
I think we would live in a better world if the IMF worried less about getting its money back. I think an IMF with four times the resources willing to loan twice as much for twice as long with half of the conditions imposed on domestic economic policies would do a lot more good in allowing countries to cope with the aftermath of policy disasters or of international capital panics.
But that's not the way the political winds are blowing. Both Lauch Faircloth and Ralph Nader appear to want not a larger, kinder, gentler IMF but no IMF at all--in which case there is no one to loan $43 billion on any terms at all to developing countries that suddenly see their balances of payments go completely haywire because of international capital panics. Stanley Fischer and Michel Camdessus have bet the future of the IMF on successful resolution of this East Asian crisis. Indonesia's spiral suggests that their bet is not at all a sure thing.
Indonesia. In the streets: