Unlike the Philippines in 1986, the Indonesian economy in 1996 is booming, with growth rates hardly dipping below 7% for decades. Yet suddenly 'politics is the supreme commander' again in Jakarta. Violence in the streets upsets business more than does cronyism and corruption. The momentary drop in share prices and the Rupiah following the riots in Jakarta on 27 July has passed, as did the similar drop just three weeks earlier when the President went to Germany for medical treatment. However, stocks of publicly listed companies owned by two of the President's children - Bambang and Tutut - have been badly hit. Chairman of the Investment Coordination Board (BKPM) Sanyoto Sastrowardoyo immediately dispatched a ministerial 'roadshow' to Europe and Japan to talk down the impact of the riots. Indonesian business leaders quoted in the domestic press were uniformly agitated. Finance leaders spoke of the 'very serious' impact of the unrest on business, especially if the government did not give a 'transparent' account of the events. They particularly feared the impact on foreign investment. Chairman of the Indonesian Chamber of Commerce, Aburizal Bakrie, said 'Money is the biggest traitor in the world. It knows no nationalism and will always seek the safest, most profitable place'. Influential businessman Sofyan Wanandi said the immediate effects of the riot were over, but foreign partners were concerned that the investment climate would be unconducive till after the 1997 elections, or later if those elections were turbulent. Foreign investors were already nervous before the riots. The Jakarta Composite Index declined steadily from 630 at the end of April to around 540 today. On 24 July Sanyoto Sastrowardoyo revealed that cancellations of foreign investment projects during the first semester this year were up nearly 15 times on last year: from US$29mn to US$459mn. With import growth continuing to greatly exceed export growth, new foreign investment is a major source of foreign exchange for the government. Ironically, journalistic rumours say the removal of Megawati from the PDI leadership by the military was paid for by powerful Indonesian business figures within the Jimbaran Group, supposedly citing fears she would destabilise business if she became president. If so, the violent scenes that followed, and the bomb threats that emptied their high-rise office buildings several times during the week after, may have given them pause for thought. Much business opinion refuses to accept the official line that the military should be thanked for nipping further violence in the bud, and instead blames the government for stimulating it. Business executives around Asia told a Far Eastern Economic Review poll just out that the Indonesian government had gone too far in suppressing opposition forces (91%), that the government was more to blame for the violence than Megawati supporters (82%), and that they now rated stability lower than before (70%). The think-tank LPSI, headed by former Interior Minister Rudini, said in an analysis last week that the government had isolated only one of many political factors when it blamed the PRD for the riots. Even if the accusation was proven, it said, it would frighten investors for two reasons. First, it would raise the question of government competence if communism could revive so long after the birth of the New Order. Second, the very act of suppressing a communist movement was likely to undermine the rule of law, ultimately the best guarantee for investors. Officials right up to the president have in recent weeks repeatedly denied that postponement of the elections is under consideration. The continued existence of the independent electoral monitoring body KIPP, and the unusually coarse military intervention in the PDI, increases the possibility of public rejection of the electoral result. But the certainty that postponement will only prolong the new investment drought will clearly have a bearing on the eventual decision.
Gerry van Klinken, editor, Inside Indonesia magazine.
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