Early in 1997 the US-French Topex-Poseidon satellite detected two humps of warm water moving eastward across the Pacific. The first wave began in January and arrived on the west coast of South America in February. The second, a mass of warm water larger than the entire United States, reached South America in early May. These so-called Kelvin waves were harbingers of a developing El Nino.
Normally, westward blowing trade winds push water from South America toward the west Pacific. As a result, sea level in the Philippines is typically 23 inches higher than off the coast of Panama. The surface water heats up as it flows west, making the ocean water situated off Australia the warmest on earth. The same pressure of the trade winds that pushes ocean water westward across the Pacific produces an offsetting ocean upwelling off the coast of Peru where the nutrient-rich water from great depths rises to the surface to replace the displaced surface water. This upwelling has made the waters off Peru one of the richest fisheries in the world.
The name "El Nino" - the Spanish word for the Christ Child - comes from Peruvian fishermen over two centuries ago who noticed that every three to seven years the normal ocean upwelling at Christmas-time does not occur. During an "El Nino" the westward blowing trade winds weaken, allowing the pool of warm water in the western Pacific to slosh eastward. This layer of warm surface water acts as a thermal barrier that prevents the ocean upwelling from developing, and the fish population off the coast of Peru either dies or migrates northward.
An extremely strong and long-lived "El Nino" occurred in 1899, causing the Indian monsoon to fail which, in turn, resulted in one of India's worst famines. The British government sent Sir Gilbert Walker to India in 1903 to become the head of the Royal Observatory with the assigned task of learning to forecast future monsoon failures. Walker was not a meteorologist; he was a senior wrangler in mathematical physics at Cambridge University. But he was also an expert statistician. Sir Gilbert sifted through world weather records and discovered that the surface air pressure between Darwin, Australia, and Tahiti see-sawed back and forth; when one was above average, the other was below. When the pressure was higher in Tahiti than in Darwin, the surface air flowed westward, and the tradewinds were strong. But when the air pressure was higher in Darwin, the trade winds weakened, and the Indian monsoons failed. Sir Gilbert coined the term "Southern Oscillation" to indicate this pattern of east-west air pressure variations in the Pacific Ocean. Despite all the technological advances in meteorology, such as radar and satellites, one of the most useful analytic tools in forecasting El Nino episodes remains Walker's Southern Oscillation Index - a measure of the difference in sea level air pressure between Tahiti and Darwin. El Ninos are associated with negative values.
After eighteen months of positive values, the Southern Oscillation Index turned strongly negative in early 1997 - minus 13 in February and minus 16 in April. An alarm went off, an El Nino of historic proportions was in the making, one which would cause droughts in Australia and Indonesia and devastating storms on the coast of South America and California.
No country was more affected by the El Nino of 1997 than Indonesia - an archipelago of 13,000 islands spanning 3,000 miles in the west Pacific Ocean. With over 216 million people, it is the most populous Muslim country in the world. During the summer of 1997 Indonesia endured a season in purgatory. As is the custom in rural areas of Indonesia, farmers practice "slash and burn" agriculture, starting fires in forested areas to clear new land in the spring with the expectation that monsoon rains will then put them out in the summer. But the monsoon rains did not arrive in the summer of 1997. The El Nino caused the worst drought in fifty years and turned the forests of Indonesia into a tinderbox. Indonesian fires burned out of control, spreading a choking haze of smoke over Malaysia, Singapore, Brunei and the Philippines. An Indonesian Garunda Airline Airbus crashed in Sumatra on September 26 (killing over 200 people) because of poor visibility due to the fires. Airports across the country were then closed for large periods of time because of the smoke and haze. The rice crop failed. Coffee production dropped forty percent. Tea and palm oil production fell thirty percent. When the economies of Southeast Asia collapsed during the currency crisis which began in Thailand in July, 1997, and the price of oil (Indonesia's principal export) plunged in the fall of 1997, conditions were ripe for a major economic downturn.
Indonesia had emerged from World War II in worse economic and political shape than most countries in Southeast Asia. Indonesia had been a colony of the Dutch since the 17th century. For three and a half centuries the Dutch exploited the wealth contained in its volcanic soils - Java was the "rice basket" and the "lumber yard" of the Dutch East Indies Company. Spice, coffee, indigo, and sugar enriched the Dutch for centuries, and then the rise of the automobile in the twentieth century produced another bonanza in rubber and oil. But the Dutch were brutal colonizers. They enforced a legal system that essentially prevented the indigenous population from owning property. Only the Dutch and the Chinese (who were granted legal protection as "non-native orientals") were allowed to freely own and accumulate capital. The result is an economy which even today is dominated by ethnic Chinese who make up only 6 percent of the population yet own 75 percent of the country's wealth.
Unlike the British who, for the most part, accepted their fate and peacefully handed their colonies over to democratically elected national governments, the Dutch thought they could return to Indonesia after its occupation by the Japanese during World War II and reclaim their property and privilege and power. Dutch troops fought a four-year war to reconquer their former colony. It wasn't until the US threatened to stop aid accorded the Netherlands as part of the Marshall Plan that the Dutch finally negotiated a peace settlement with the Indonesian nationalists. Finally, on October 27, 1949, Achme Sukarno, became President of an independent Indonesia.
Sukarno came from the upper class of Javanese society and longed to be the leader of the world's non-aligned nations - those newly created countries whose unifying emotion was a shared hatred of their former colonial rulers. During the nineteen-fifties, Sukarno managed to carefully thread his way between capitalism and communism, extorting foreign aid from both Cold War camps. He took pride in hosting gatherings of the leaders of developing countries - such as the Asia-Africa Conference of 1955 which convened in Bandung - to mold the non-aligned nations of the world into an international political block.
But in the nineteen-sixties his ideological persona led him to engage in a dangerous and erratic foreign policy. He declared war on the newly created nation of Malaysia in 1963, withdrew from the United Nations in 1965, and began to champion the cause of the Chinese Communists. (The world press began writing of a "Peking-Jakarta axis.") That was a dangerous move for any Southeast Asian country to take at a time when the United States was becoming increasingly preoccupied with the escalating war in Vietnam.
By 1965, not only had Sukarno lost the support of the United States, he was sick, suffering from kidney failure. Moreover, the Indonesian economy was collapsing - thanks, in part, to an El Nino that hit Indonesia in the summer of 1965. The bad harvest caused the price of rice to quadruple between June and October, and the black market price of the dollar soared. Sukarno had never used the international fame he had acquired in his third-world movement to improve the economic condition of his own people. Now it was too late. The government was bankrupt (except for aid provided by the Soviet Union and Communist China) and the economy was collapsing under the burden of triple-digit inflation. The Sukarno regime was ripe for overthrow, but he still retained an almost icon-like image as the "father of his country."
The all powerful Indonesian Army was, itself, split between a predominately Muslim right-wing and a decidedly pro-Chinese left-wing. On the evening of September 30, 1965, rumors that high ranking right-wing generals, fearful of the growing political influence of the Indonesian Communist Party, were going to overthrow Sukarno, provoked the left-wing officers of the Presidential Guard and the Indonesian Air Force to launch a preemptive strike in order to head off the suspected coup. Rebel officers calling themselves the "September 30 Movement" burst into the homes of seven high ranking Indonesian Army Generals. General Yani, the head of the Indonesian Army, was shot and killed on the spot, as were two other generals. General Nasution, Sukarno's influential Minister of Defense, escaped over the back wall of his house and hid in some bushes, avoiding assassination, but his five-year-old daughter was shot and killed. The remaining three generals were taken to Hamlin Air Force Base outside Jakarta in their pajamas, bound in ropes, where they were brutally castrated and executed at the hands of Communist Party members. The next day, Lt. Colonel Untung, the leader of the "September 30 Movement", went on Radio Republic Indonesia to announce that a "Revolutionary Council" had seized power to thwart a United States CIA-sponsored coup against President Sukarno. (Whether the coup was started by dissident army officers against Sukarno, or with the President's connivance, remains an enigma.)
By some strange twist of fate, a virtually unknown Major-General, Suharto, seized the moment and moved to restore order. General Nasution, who had miraculously escaped being murdered, was extremely cautious and backed away from an obvious opportunity to take power. It was by sheer accident that Suharto was the one to take over, but he quickly made an amazing power play. Suharto drove to army headquarters near the Presidential Palace and assumed command of its troops. After isolating Sukarno, he gave the rebels an ultimatum, acknowledge their mistakes and surrender, or be killed. They surrendered. On October 2, Suharto obtained from President Sukarno the authority to restore "security and order," and from that moment he effectively assumed the powers of the presidency.
The traditional Armed Forces Day ceremonies on October 5 were replaced by an elaborate military funeral for the martyred generals. General Nasution delivered an particularly moving eulogy to his fallen "brothers." The public reaction to the assassinations led to one of the most savage mass slaughters in modern history. The six-month holocaust made Indonesia's rivers literally run red with the blood of suspected communists, largely Chinese. Pogroms against the Chinese fomented by fanatical Muslims (many with an economic interest in their Chinese neighbors' demise) went on for months. People stopped fishing in many rivers because they often found human fingers and other body parts inside the fish they caught. Official Indonesian estimates put the death toll at approximately five hundred thousand, but other estimates run as high as two million - mostly in forgotten rural villages where no records were kept.
As the violence spread, and the stricken president lost all credibility, Sukarno was forced to transfer all presidential power to Suharto on March 11, 1966. The new president's first act was to ban the now virtually annihilated Communist Party of Indonesia. In six months Suharto had wiped out the third largest communist party in the world. President Lyndon Johnson was ecstatic, and Suharto became one of Washington's favorite third-world anti-communist leaders (along with South Korea's Park Chung Hee). Sukarno was allowed to remain as Indonesia's titular president until March 1967, when Suharto was made acting president, and Sukarno was placed under house arrest until he died in 1970.
Suharto took over a country that was nearly bankrupt. But President Lyndon Johnson, was quick to embrace the new leader of Indonesia. Indonesia, which under the leadership of Sukarno had been the nightmare of American foreign policy, suddenly became America's favorite South East Asian country. American and Japanese companies poured foreign investment into the country to develop its rubber and oil industries. For the next three decades Suharto ruled Indonesia without opposition, largely because of the high economic growth rates which made Indonesia the envy of the third-world. The surge in oil prices in the 1970's made Indonesia's principal export a pot of gold. In 1972 Indonesian crude oil sold for less than $3 a barrel. By 1980 a barrel of oil sold for over $30. Oil revenue poured into government coffers, enabling Suharto to finance a rapid development of the infrastructure. Indonesia's growth rate averaged 7 to 8 percent per year. The production of rice, Indonesia's staple food, grew at a rate unparalleled in Asia. Between 1960 and 1980 per capita production of rice and other grain crops increased from 95 kg to 142 kg. After many years of being the world's largest rice importer, Suharto was able to declare Indonesia self-sufficient in rice production by the mid-1980s. Indonesia's per capita income jumped from $260 in 1970 to over $3,500 by 1997.
Even when the price of oil took a nose-dive in the mid-1980s, Indonesia's economic boom continued because Suharto had wisely used Indonesia's oil revenue during the years of the oil boom to diversify its export base. Whereas oil revenue made up over three-quarters of export revenue in 1980, it made up only 20 percent by 1997. It was the spectacular performance of its non-oil exports that allowed Indonesia to survived the collapse in oil prices.
Suharto led his country into economic prosperity, but no one benefited more from Indonesia's economic boom than Suharto, himself, and his family. Suharto was known as "Mr Ten Percent." Unlike the aristocratic Sukarno, Suharto was a poor farmer's son. But Suharto became far richer than any other American-sponsored dictator during the Cold War - richer by far than the Shah of Iran or Ferdinand Marcos of the Philippines. (He also was responsible for the most deaths of his people.) In the name of redressing perceived injustices done to the indigenous Javanese population by the Chinese business class, Suharto promoted his own brand of crony-capitalism. Suharto tapped into everything from oil and natural gas to flour milling and petrochemicals. Almost all of Indonesia's most profitable industries were protected from competition by licenses granting monopolies to Suharto's politically powerful friends and family relatives. Unfortunately, Suharto's monopolistic industrial policy took a heavy toll on the average Indonesian consumer who had to pay non-competitive prices for the goods he purchased.
Suharto's six children became enormously wealthy under his patronage, receiving monopolies on everything from newsprint to cigarette cloves. His eldest daughter, Siti Haurdiyani Rukmana, controls Indonesia's main toll roads. (She is nicknamed "Tutut", alluding to the sound of cars honking on her roads.) His son, Hutomo Putra, or "Tommy", made his first fortune in a government sponsored strategic clove fund which allowed him to buy up raw clove stocks and then sell the crop to "kretek" cigarette manufacturers at four times the purchase price. Then Suharto promoted Tommy's "national car" project.
Because of exceptionally high tariffs, cars in Indonesia cost about two or three times what they cost in the world market. But Tommy got a deal from the government that allowed him to import cars produced by Kia of South Korea duty free. There was nothing about the "Timor" (Tommy's national car) that was Indonesian. It was produced and assembled in South Korea; only the name was changed. Because no taxes or tariffs were paid by Tommy's company, he could sell the cars for less than half the price of a locally assembled Toyota Corolla. Even so, Tommy managed to lose money on the project and incur the enmity of foreign automobile companies that were actually assembling cars in Indonesia.
As the currency meltdown spread from Thailand in July of 1997, country specialists from the IMF and the World Bank remained confident that Indonesia could weather the storm. Indonesia had a large budget surplus and huge foreign exchange reserves of nearly $28 billion. It did have a current account deficit of 3 1/4 percent of GDP, but that was considered manageable; it was still less than half Thailand's. And while Indonesia's exports were experiencing rapid growth of over 9 percent a year, Thailand's were flat. Indonesia also had a sophisticated managed floating exchange rate system. For several years the Bank of Indonesia allowed the rupiah to float within a range of 8 percent around a target exchange rate which depreciated against the dollar at a rate of about 7 percent a year. As late as October, the IMF was still confidently predicting that Indonesia would grow by 3 percent in 1998.
In early July, the Indonesian central bank reacted to the drop in the value of the Thai baht by widening the band of the rupiah's managed float from 8 percent to 12. For a time that seemed to do the trick. The rupiah held at around 2500 to the dollar. There seemed to be little cause for concern. But the situation deteriorated drastically in August, and Indonesia began to lose its foreign exchange reserves. Finally, on August 14th, the Bank of Indonesia decided to abolish its managed exchange rate regime and allow the rupiah to float. The rupiah immediately plunged in value. The rupiah/dollar exchange rate rose from 2,500 to 10,000 by early 1998.
Beset with the El Nino induced drought and the fall in the rupiah to 25 percent of its value against the dollar, Indonesia's growth rate plummeted from an average of 8 percent per year to negative 15 percent in 1998. Suharto was caught between a rock and a hard place. Inflation hit 80 percent, and a quarter of the work force was unemployed. For over three decades, Indonesians were willing to tolerate Suharto's cronyism and corruption because times were good. Now it suddenly seemed possible that the Indonesia's "economic miracle" had been a fraud, and Suharto's public support suddenly evaporated overnight.
While Thailand depleted most of its foreign exchange reserves in an attempt to prop up the value of the baht, Indonesia still held almost $27 billion of reserves when it asked on October 8, 1997 for an IMF bailout that eventually reached $43 billion. But when the IMF revealed the conditions of the bailout package, Suharto was horrified; he had fallen into an IMF trap. The Fund insisted on wide ranging reforms as a precondition of Indonesia receiving the money. These included cancellations of Tommy's national automobile project, a drastic restructuring of the banking system, cutting government subsidies to gasoline, kerosene and electricity, cutting large-scale infrastructure projects, liquidating the Suharto family monopolies, and agreeing to a government budget surplus of 1 percent of GDP during fiscal 1998/99.
Suharto had no intention of adhering to the IMF's conditions. The president and his family and cronies realized that the reform plan designed by the IMF's technocrats was nothing but a strategy to undermine the foundations of his regime. Suharto initially agreed to the IMF's draconian terms, began to receive the money, and then went on his merry way, ignoring, even reversing, the actions that he promised to fulfill. Banks controlled by the Suharto family that were supposed to have been closed because of their insolvency, were immediately reopened under different names. Fifteen of the large national projects slated to be cancelled were revived. Suharto was testing how far he could go in evading the reforms promised to the IMF. Suharto wanted the IMF money, but he also realized the conditions of the bailout spelled the end of his regime, and the budget surplus of one percent of GDP, required by the IMF, would do nothing to contain inflation or reduce unemployment.
On January 6, 1998, Suharto drew up a draft of the 1998/99 budget that did not show the surplus required by the IMF. Moreover, the budget was based on projections that wildly overestimated economic growth and the value of the rupiah. The rupiah quickly sank to 10,000 and then 16,500 per dollar. It even touched 17,000 before oscillating around 10,000. The exchange rate crisis quickly became a debt crisis. Indonesia had almost $80 billion dollars of unhedged foreign debt, ninety-five percent of which was owned by only fifty individuals, mainly Suharto's family and friends.
Suharto appointed Professor Steve Hanke, an economist from Johns Hopkins University who specializes in exchange rate regimes, to be his special economic advisor. Hanke told Suharto that the key to solving Indonesia's economic problems was restoring the value of the rupiah. An appreciation of the rupiah would mitigate inflation and cushion the painful rise in the prices of food and fuel. Moreover, Hanke said the rupiah problem could be solved if the country would adopt a currency board like that of Hong Kong's. Hanke supposedly proposed that the targeted exchange rate for the rupiah should be about 5,000 to the dollar, at a time when the rupiah was trading well above 10,000, and foreign exchange reserves had fallen to only $17 billion. The IMF quickly concluded the currency board idea was a fraudulent scheme for Suharto and his family to loot the central bank's reserves to allow him to send his incredible wealth overseas at an overvalued exchange rate. With the support of the World Bank and the Clinton administration, the IMF stopped the currency board project dead in its track.
On April 10, 1998, a third IMF agreement was signed. This time the IMF was determined not to be cheated by Suharto's false promises of reform. The amount promised by the IMF (actually a loan) remained the same, the requirement of a 1 percent budget surplus was relaxed to a 1 percent deficit, but Suharto was forced to sign a humiliating fifty-point program in front of the beaming IMF Managing Director, Michel Camdessus, whose folded arms reminded many Indonesians of their former Dutch colonial masters. There was even some sympathy for Suharto's predicament in World Bank and IMF circles and concern that the harshness of the IMF's program could promote social unrest.
Then, Suharto suddenly blinked. No one quite knows what moved him to suddenly increase the price of gasoline 70 percent by removing subsidies, ahead of the IMF's deadline, on May 4. The subsequent rioting in the Northern Sumatran capital of Medan brought the simmering frustration of the Indonesian people to the surface. Four students were shot by national security forces at Trisakti University in West Jakarta on May 12. There was an emotional public burial of the dead, and then the rioting began. Shops and banks were smashed and looted, particularly in Chinese areas. But Suharto held on. He was still confident enough to take off on trip to a conference in Cairo, but when he returned two days early to Jakarta on May, 15, it was to a city ravaged by three days of rioting and looting. The city resembled a war zone with columns of smoke rising from burned out shops. Over a hundred and twenty charred bodies of looters were being pulled out of two burning shopping malls set ablaze by other rioters. But the city was eerily quiet. The looters were exhausted, picking through the rubble and counting the dead. It was also a little like Christmas. Although the rioters' stomachs were empty, their arms were filled with looted goods. Over a thousand people had died; close to a billion dollars' worth of damage had been done: 4,000 businesses, 1,000 homes and 1,000 vehicles had been burned and destroyed.
Even so, when Secretary of State Madeleine Albright announced that Suharto should resign for the good of his country, many Indonesians felt she had added insult to injury. For thirty-two years, the United States had supported the Suharto regime; then it suddenly abandoned him. On May 21, 1998, a few moments after 9 o'clock, Suharto announced that "I have decided to quit as president." No one seemed prepared for his sudden exit. Just two months earlier Suharto had been unanimously re-elected for a seventh term by the ruling Golkar party.
Suharto's handpicked successor, his vice president and adopted son, B.J. Habibie, became president. Habibie subsequently lost the 1999 presidential election to Abdurrahman Wahid - an almost blind Muslim cleric who had already suffered several strokes. This stroke-battered, blind Muslim intellectual seemed as frail as his country; and yet, during the Suharto years, no one had resisted the regime's coercion and corruption more consistently and cleverly than he. He joked that while Sukarno was crazy about women, his successor, Suharto, was crazy about money, and Habbie was just crazy, in his case, it was those who elected him that were crazy. But to many devote Muslims, his selection was regarded as coming from on high. He is called, affectionately, Gus Dur by most Indonesians. (Gus being a term of respect, and Dur is short for Abdurrahman.) Whether he will be able to revitalize the Indonesian economy without Suharto's cronyism or preside over the devolution of Indonesia, only time will tell.
Mac Williams
Cosmos Mariner
Destination Unknown
© June 10, 2001