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A brief history

Prior to 1949, Indonesia was under the Netherlands. Following a bitter war for independence, Indonesia became independent on December 27, 1949; and, acquired other territories formerly under the Dutch government such as New Guinea which was renamed West Irian, then, later became Irian Jaya and West Papua in 2000. When President Suharto took over the presidency from Sukarno, Indonesia’s co-father of independence in 1965, relations with the West were enhanced and Indonesia’s economy improved dramatically. Economic progress was rapid through the thirty year up to 1997.

It was the years that most analysts recognized Indonesia as a “newly industrializing economy, and emerging major market. ”1 Indonesia’s GDP growth rate was averaged nearly 7% and during this period, living standard “improved significantly and poverty steadily declined, and per capita income rose. ”2 But when the economic crisis broke out in 1997 sweeping East Asia, Indonesia was particularly hardly hit. The problems that were brought upon by these economic crises on the Indonesian economy were the collapsed of the banking sector and the “dramatic exodus of external capital estimated by the World Bank at around $9 billion in 2000 alone.

”3 Sixteen banks were closed upon instruction of IMF mission which “precipitated a run on all Indonesia’s banks, and the Bank of Indonesia was forced to bail out the entire system. ”4 As a consequence, a government debt of $60 bn was implemented. Public debt, which was at sustainable level prior to the upsurge of the economic crises, has “more than doubled since the crises to reach $130 bn, or roughly 90% of GDP, and an equally sharp increase in private, debt has left the country’s total debt (private and private standing equivalent to GDP at $143 bn.

)”5 The Political Aspect Indonesia’s political arena since its independence seems to depend on who is on the throne. During Sukarno’s reign, the dominant influence on the political atmosphere is his own Indonesian Communist Party (PKI). But when President Suharto rose to power in 1967, he ruled the country for the next thirty-two years with an authoritarian regime under which hundreds of thousands of suspected communist were killed by Suharto’s force; and, 200,000 more death as either victims of human rights abuses, malnutrition or disease.

The political climate now in Indonesia is still quite unstable and terrorist activities and political violence are still surging. The Bali bombing in 2002 left hundreds dead, and upsurge of fighting in the province of Aceh , Ambon, East Timor, Borneo and Irian Jaya are “indicative of the separatist tension that continue to plague this desperate nation. ”6 Should the debts of developing countries and that of Indonesia be cancelled? Indonesia’s former dictator General Suharto borrowed heavily from the time he seized power in 1967 until his fall in 1998.

Rich country creditors were keen to fund Suharto, an avowed ‘anti-communist’, even though his extensive corruption and brutal oppression were well-documented. The World Bank lent the Suharto regime approximately $30 billion during this time. Suharto is estimated to have stolen more from his country than any other leader in history: up to $35 billion. Much of Indonesia’s debt is paying off the cost of arms sales. The UK government insured large amounts of arms sales to Indonesia by British companies, even after evidence emerged that Suharto was using these weapons against unarmed Indonesians.

The Asian financial crisis of 1997 made has created difficulties for Indonesia to pay off its ‘debts’. The sinking of the value of Indonesia’s currency also meant that the debts (which have to be paid off in foreign currency like US dollars) became more expensive. And, the burden of paying this huge debt was laid on the shoulder of the Indonesian people, almost entirely incurred through loans recklessly (or self-interestedly) given to a corrupt former dictator, at a rate of $56 million every day. Indonesia needs cancellation of its illegitimate and odious debt.

Because of this huge amount of debt, a growing number of voices both inside and outside Indonesia are calling for the cancellation of Indonesia’s debt not only as a question of charity or meeting human needs, but as a question of justice. The reason behind is that, people are suffering because of heavy burden of debt repayment acquired during Suharto regime and the severe impact pf economic crises in 1997. The argument of many observers is that, corruption in Indonesia is the biggest reason for this debt accumulation during Suharto regime, which was further aggravated by calamities and other terrorist activities in the country.

Indonesia’s total external debt stands at $159 bn, $60bn of these were acquired immediately after the economic crises loomed in 1997. Other East Asian nations too and some Latin American countries are heavily laden with debt burden and dreaming of debt relief. But, in the case of Indonesia, it appears that they have the reason to ask for cancellation on the following grounds. “In the early 1980’s, the IMF and the world bank pushed through a highly risky banking deregulation that opened up the banking system without any protection or control.

The policy left the Indonesian economy vulnerable to financial catastrophe that eventually ensued. ”7 From this, we can blame the policy that the IMF has initiated for Indonesian banks. They had committed a blatant mistake in requiring the bank’s deregulation with no “measures in place to deal with the consequence of such action,”8 that resulted to a literally devastated economy when the crises struck the region. When the IMF came to Indonesian’s rescue, “it applied its classic prescription of increased taxes, reduced public spending, and higher interest rates. The package caused a dramatic surge in Indonesia’s indebtedness.

”9 Since the time Indonesia joined the IMF in 1967, the formulation of economic policy was “heavily dependent on the decisions of the Intergovernmental Group on Indonesia, a body that brings together all major western leaders including the IMF. ”10 It is also worth noting that even the creditors such as the World Bank, IMF, and ADB are aware of “mismanagement in handling loan proceeds, and corruption in the collection of taxes,”11 and that Indonesia cannot rely on domestic resources like manufacturing and oil and gas to “gradually reduce the external debt; yet, they were always eager to extend new loans.

”12 In addition to this, IMF directives towards the $43 billion emergency financial package included reforms in the timber concession system and measures to increase timber and wood processing industries, which led to the “increased felling and illegal logging. ”13 Based on these economic, moral and ecological consequences of IMF, World Bank and other foreign creditors’ debt policies, regulations and economic measures being implemented, Indonesia has a strong reason to avail of debt relief from its foreign creditors.

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