''As the crisis spread to Indonesia, I became even more concerned. New research at the World Bank showed that recession in such an ethnically divided country could spark all kinds of social and political turmoil. So in late 1997, at a meeting of finance ministers and central-bank governors in Kuala Lumpur, I issued a carefully prepared statement vetted by the World Bank: I suggested that the excessively contractionary monetary and fiscal program could lead to political and social turmoil in Indonesia. Again, the IMF stood its ground. The fund's managing director, Michel Camdessus, said there what he'd said in public: that East Asia simply had to grit it out, as Mexico had. He went on to note that, for all of the short-term pain, Mexico emerged from the experience stronger.
''But this was an absurd analogy. Mexico hadn't recovered because the IMF forced it to strengthen its weak financial system.... It recovered because of a surge of exports to the United States, which took off thanks to the U.S. economic boom, and because of NAFTA. By contrast, Indonesia's main trading partner was Japan-which was then, and still remains, mired in the doldrums. Furthermore, Indonesia was far more politically and socially explosive than Mexico, with a much deeper history of ethnic strife. And renewed strife would produce massive capital flight (made easy by relaxed currency-flow restrictions encouraged by the IMF). But none of these arguments mattered. The IMF pressed ahead, demanding reductions in government spending. And so subsidies for basic necessities like food and fuel were eliminated at the very time when contractionary policies made those subsidies more desperately needed than ever.''
According to Reynolds, the World Bank estimate was that in June 1998, the number of Indonesians living on less than a dollar a day rose from twenty million to forty million, that is, the poverty rate doubled overnight – and it was no fault of Suharto (Reynolds, 633).
The emergence of post-war Indonesia is usually divided into three periods (Colin Brown, 'Sukarno to Suharto', ed. Colin Mackerras, Eastern Asia (Melbourne: Longman Cheshire, 1994, pp.336-355)):
(1) 1949 - late 1950s: parliamentary or constitutional democracy;
(2) late 1950s - mid- to late 1960s : guided democracy;
(3) mid- to late 1960s - 1998 : New Order period.
One notices a progressive rejection of democracy initiated by the divisive effects of the parliamentary elections of '55; the ensuing militarization of politics; the post-colonial internationalism of Sukarno which bankrupted the economy; followed by the anti-communist regionalism of Suharto and his total emphasis on development. Suharto, therefore, inherited certain aspects of his rule, and disinherited his country of those which pauperised and splintered it.
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