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Trying To Keep Indonesia's Pot From Boiling Over (Int'l Edition)


International -- Asian Business: INDONESIA

TRYING TO KEEP INDONESIA'S POT FROM BOILING OVER (int'l edition)

Suharto asks factories to limit layoffs--and beefs up security

Three weeks ago, Supryanto, 21, lost his $7-a-week job making trousers in a Jakarta sweatshop when it went out of business. He couldn't afford a bus ticket back to his East Java village--where he has a family to support and where the crops have failed. So, with nothing but a Betty Boop T-shirt and threadbare jeans, Supryanto joined other ditchdiggers searching hopelessly for work in the dead construction industry. They sleep under an elevated highway, where a food vendor feeds them on credit. "Everybody's angry at everybody else because we have no money," he says. "If all the people attack the President, we'll do it, too."

Such talk has President Suharto and his family concerned, and they are eager to set up a social safety net to keep the poor from rebelling. Until recently, few workers worried about security. The economy's expansion seemed limitless, and jobs were plentiful. But with the economy reeling, Suharto has swallowed his pride and accepted $5 billion in emergency food aid from the West. He has asked factories not to lay off workers and has ordered security forces to keep rural migrants out of the capital unless they have a bona fide job. "The same catastrophe that produced the cataclysm of 1965 is just beneath the surface here," warns a Jakarta economist, referring to the massive upheaval in which 500,000 people, mostly ethnic Chinese, were slaughtered.

A host of problems have made Indonesia's economic situation especially hard on the poor. The 70% depreciation of the rupiah has caused factories that employ low-wage rural workers to fail, roughly doubling the number of unemployed, to 8 million. On top of that, severe drought caused by El Nino has resulted in massive crop failures--including a 2 million-ton rice shortfall. Mochtar Pakpahan, jailed leader of the Indonesian Prosperity Trade Union, says it's unlikely workers will get annual minimum-wage increases this April, despite expectations that inflation could exceed 70%. Already, riots have torn though Java, and violence is expected to grow as economic hardship worsens.

Just to feed its 200 million people, Indonesia must accept help. The World Bank has committed $2 billion for relief loans and a further $2.5 billion for cash-for-work programs. Australia, the U.S., and Canada are offering millions more in food and medicine. That's separate from the International Monetary Fund's $43 billion bailout, being held up by negotiations on subsidies for rice, flour, and other staples.

Key to whether a safety net will work is the help from debt-plagued conglomerates. Although Indonesian businesses owe collectively $74 billion to foreign lenders, some are heeding requests by officials not to lay off workers--but to cut salaries instead. Toyota Motor Corp. partner Astra International is laying off 4,000 contract workers but keeping its 119,000 full-timers on the job, despite a 90% drop in car sales. Some 400 Astra managers are taking pay cuts up to 15%. Citra Bimantara, controlled by Suharto's son Bambang Trihatmodjo, has cut wages by 30% for some of its 14,000 employees at idle subsidiaries, including a Hyundai plant. It is using the money to buy food for the lowest-paid employees. Bakrie & Brothers, whose CEO Tanri Abeng became a cabinet member in March, cut executive salaries by 50%.STOPGAP MEASURES. Part of the reason companies are willing to go along is that Bob Hasan, Suharto's new Trade Minister and longtime business partner, has influence over the conglomerates he has helped in the past. Hasan himself was chairman of Astra until he resigned in March to take over the trade ministry. "Hasan will tell them: `It's payback time, at least for the next two years. After that, we'll make hay again,"' says Dewi Fortuna Anwar, economist at the Indonesian Institute of Sciences.

Security forces are also working to stem unrest. Military and police officers are stopping trains and buses headed into Jakarta and pulling off passengers who are without working papers. The army is keeping demonstrating students from marching off Jakarta campuses, thereby preventing disenfranchised workers from joining them and rioting.

Such measures could be stopgaps. "It takes more than four months for a government to set up a safety net," says Michele Foust Broemmelsiek of Catholic Relief Services, one of two agencies that will dole out U.S. food aid. The test will be whether ditchdiggers like Supryanto fall through the cracks.By Michael Shari in Jakarta


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