Now its Indonesia: U.S. mixes threats with promises as crisis spreads

By Fred Goldstein, in Workers World
22 January 1998

Just at the very moment when the world imperialist governments and the banking establishment were struggling to stabilize south Korea, the focal point of the Asian financial crisis--the Indonesian rupiah collapsed. This has affected the entire region.

Officials of the United States and the International Monetary Fund, including U.S. Secretary of Defense William Cohen, hastened to the area. They aim to shore up the rapidly crumbling economy in Indonesia, even as workers in south Korea prepare to resist the U.S./IMF program of mass layoffs.

IMF THREAT DRIVES DOWN RUPIAH

The crisis shifted to Indonesia after fascist President Suharto announced a national budget with a 32-percent increase in government spending. It included large-scale construction projects in which his family has a financial interest. This allegedly violated IMF-imposed austerity measures that were dictated last August as conditions of a $43 billion bailout package.

As soon as the budget was announced, the Clinton administration and the IMF denounced it. The IMF threatened to withhold its next $3 billion payment, scheduled for March 1.

But then the rupiah, which had been trading at 2,400 to the dollar last August, plunged 26 percent in one day--to 10,000 to the dollar on Jan. 8.

This sent stock markets in the entire region plummeting. The next day the Dow Jones Industrial Average of stocks in New York dropped 220 points.

While the IMF and the big-business press are trying to blame the Indonesian crisis on nepotism, the currency drop only aggravated an already existing condition. Over the last several years of capitalist expansion in Asia, Indonesian corporations went into debt to imperialist banks by an estimated $65 billion to $80 billion.

At present, 260 of the 282 companies listed on the Indonesian stock exchange are bankrupt and cannot pay their debts. Hundreds of non-listed companies are in similar shape.

In fact, Reuter reported Jan. 9, "Indonesian corporates decided at about the 7-8,000 level [of the rate of exchange] that they were unable to repay debt." Even at lower rates of devaluation, the "estimated $65.6 billion in corporate debt was in any case a virtually insurmountable problem."

In addition, the Indonesian government owes foreign banks $56 billion.

LENDERS 'PUMPED MONEY IN'

In a moment of partial truth, the Jan. 11 New York Times wrote of the Indonesian situation: "The current crisis arose as international lenders pumped money into its banking and corporate system, thinking that prosperity would last forever. Once the Indonesian currency started dropping, the loans could not easily be repaid. Last week, the currency all but collapsed, throwing hundreds of banks and companies into bankruptcy. Citizens have begun hoarding food. Fears of unemployment and social unrest are spreading."

Of course, the Times failed to mention that the reason "prosperity"--meaning a gravy train of profits--did not last "forever" was that the market for the entire region was glutted with goods. This is the result of capitalist overproduction. It has afflicted all the Asian export- oriented economies.

This overproduction was financed by parasitic U.S., European and Japanese banks to the tune of hundreds of billions of dollars. Each raced the others to skim profits from sweatshop owners and speculators--who in turn live off the stolen labor of millions of low-paid workers.

The Clinton administration and the IMF have now taken a joint initiative to put Suharto in line. This fascist general was known as the "butcher of Jakarta" because in 1965 he led a CIA/Pentagon-orchestrated coup that killed up to 1 million people. The rivers literally ran red with the blood of communists and progressives.

But Suharto is now caught between the masses and the bankers. At the beginning of January analysts declared that 2.4 million Indonesian workers had already lost their jobs since August. The head of the government-approved labor union projects that unemployment will reach 11 percent.

Indonesia, the world's fourth-biggest country, has 90 million workers and a total population of 202 million people.

SUHARTO AND WASHINGTON FEAR INDONESIAN MASSES

When the rupiah dropped and people flooded the stores to stock up on goods, the military was put on a third-level alert. Army patrols were beefed up.

But at the same time, Suharto had to rush cheap food and fuel to the masses to head off a full-scale rebellion.

Much of his government's spending on labor-intensive projects like electric power, airports and roads--now largely postponed under IMF pressure--was calculated not only to earn profits for his family but to absorb the growing unemployment flowing from corporate bankruptcies.

The Jan. 9 Wall Street Journal denounced this as "Keynesian pump priming." But then the Journal had to admit that with "unemployment expected to grow by 50 percent this year, the government's primary concern is not the unhappiness of IMF emissaries but the possibility of civil unrest."

In the last year Suharto has formed a National Discipline Movement, made up of officials from municipal authorities, to supplement the police and military. This force was active in suppressing a rebellion by street vendors in Java in December.

This reveals the growing social tensions and fear of being overrun by the masses, even before the current crisis.

After three decades of repression, a new and vigorous movement of resistance lies under the surface. This movement flared up in July 1996 when the police attacked the headquarters of the Indonesian Democratic Party, a bourgeois opposition party.

It led to an uprising in which 22 downtown buildings and many vehicles were burned in Jakarta. Troops were then deployed throughout the city.

A new generation of militants has formed underground unions and leftist political organizations. This crisis could open up a new resurgence in Indonesia, which has a deeply rooted and militant anti-imperialist and communist heritage.

The Clinton administration and the Pentagon know this as well as Suharto does. Washington and the IMF have been unable to stem the crisis by financial manipulation, bailout, rollovers or economic threats.

On the contrary, all their measures are aggravating the social and political crisis.

Indonesia is not like south Korea. There, a semblance of parliamentary democracy has been cultivated. Kim Dae Jung, a known liberal with popular support, is trying to sell the bankers' program of austerity to the masses.

In Indonesia, however, the United States has only the military to rely on. As Suharto becomes more discredited, Washington is casting about to see what its options are.

COHEN SHAKES BIG STICK

No doubt, assessing Indonesian prospects is an important part of Secretary of Defense William Cohen's eight-nation tour. But his main military/diplomatic task is to threaten everyone in the region with the big stick of the U.S. military, and to prepare all the U.S. military puppets in the area for counterrevolution.

Agence France Presse reported Jan. 12, "U.S. Defense Secretary William Cohen called Monday for a 'flexible and unrestricted' U.S. military presence in Southeast Asia supported through closer ties to the region's militaries."

With this language, Cohen was rejecting a recent proposal floated by the Association of Southeast Asian Nations that would require prior notification of changes in the number and location of U.S. troops in the area--now at 100,000.

According to the AFP, an unnamed defense official said: "Increasingly we want to make clear that our deployment patterns are not just in northeast Asia [Japan and south Korea], they are in Southeast Asia as well. ... Our ticket to the big game in Asia is our security presence."

In addition to shoring up military positions, Cohen is also on assignment from the military-industrial complex. His task is to make sure that austerity is restricted to the masses and doesn't affect the military and its contractors.

The Pentagon "will explore with U.S. defense companies how to restructure contracts with Asian governments," said the Wall Street Journal of Jan. 11. The goal, according to Cohen, is to "make sure their security needs are met and the programs continue."

But military strength is not going to untangle the web of insoluble contradictions woven by the world's profit-seeking financiers.

The largest local investment bank in Asia, Peregrine Investment Holdings Ltd. of Hong Kong, with holdings of $1.4 billion in securities last November, declared bankruptcy on Jan. 12. The reason: It was sitting on a mountain of Indonesian debt.

The Zurich Group insurance company was about to bail out Peregrine with $200 million when the rupiah crashed and the deal was canceled. The First Chicago Bank is one of Peregrine's biggest creditors. Some 17,000 Peregrine employees throughout Asia were just thrown out of a job.

KOREAN BANKS VS. KOREAN WORKERS

The Indonesian crisis holds great danger for the south Korean bailout. Among the biggest holders of Indonesian debt were south Korean banks.

Even more dangerous, Japanese banks--which already hold $24 billion in shaky loans from south Korea--also hold $23 billion in Indonesian debt.

The Indonesian crisis has implications for the entire financial system of Asia and for world capitalism.

Military threats by U.S. imperialism are not sufficient to stop the south Korean workers from resisting the IMF and the banks. According to the Jan. 12 Korean Herald, "In a united stance, the largest labor organizations, the Federation of Korean Trade Unions and its close cousin, the Korean Federation of Trade Unions, said that they will deter the upheaval [of mass layoffs] whatever the cost."

KOFU, the union of workers at financial institutions, is already demonstrating in Seoul. The KCTU, made up of workers in ship building, auto, steel and other heavy industries, led a general strike against mass layoffs last January.

These unions are now being put to the test. Michel Camdessus, head of the IMF, is meeting with leaders of the two trade union confederations, trying to convince them to accept new legislation allowing mass layoffs.

This is not just an intellectual argument. Camdessus holds $57 billion in loans over the heads of the union leaders and is threatening to blame them for Korea's downfall if they resist the IMF plan.

The working class in Asia is bigger than it has ever been. It is bound to grow politically in this period of turmoil. No other force can stop world finance capital from holding the masses of Asia in debt slavery.

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