Feb 20, 2018 Last Updated 12:49 AM, Feb 16, 2018

No crisis please

Published: Sep 29, 2007

Thailand was the first to be hit with the monetary crisis. Then followed the Philippines, Malaysia and Indonesia. But why did the crisis induce political reform in Thailand, while Indonesia made no move to reform? Both the Thai and Indonesian economies have been effectively deregulated and oriented to export since the early 1980s. Both implemented economic reforms that placed them among the second generation of newly industrialising countries - after South Korea and Taiwan. The World Bank called it a 'miracle'. What was the recipe for Thai and Indonesian success? First, it had much to do with the leadership of Prime Minister Prem Tinsulandonda, in power between 1980 and 1988, and that of President Suharto, in power from 1968 till the present day. Both came from the military but were supported by the political elites of each country. Second, Prem and Suharto got a lot of help from economic advisers who were independent, disciplined and apolitical. Most had PhDs from American universities. Dr Snoh Unakul in Thailand and Prof Wijoyo Nitisastro in Indonesia formed teams that often consulted with Prem and Suharto, and this resulted in economic policies inducing rapid growth.


However, Thailand and Indonesia are politically rather different. Prem had a more progressive political vision than Suharto. He believed economic reform alone was not enough, and began a gradual process of democratisation. The lower house of parliament had to be elected directly by the people. The media gained more room to move, and other freedoms - of association, of speech - also grew. Former student activists from the 1976 political crisis, some still hiding in the jungle, were given amnesties and returned to Bangkok. Prem's successes bore fruit. Today Thailand is one of the most democratic countries in Southeast Asia, along with the Philippines. The Thai people enjoy relatively free elections to choose the government they want. Although it experienced a military coup d'etat in 1991 and the bloody Bangkok incident of May 1992, the election of Chuan Leekpai in September 1992 once more consolidated a democracy that has lasted until the present day. Suharto, meanwhile, has retained a political format that allows only three political parties - Golkar, PDI and PPP. He did not respond to social pressures in the late '80s to open up the political system. Demonstrations by students, farmers and workers early in the '90s were signs that Indonesians wanted more democracy. In other words, Indonesia lags far behind Thailand in the area of democracy.


But the high growth rates of 8-10% in both countries during the '80s and early '90s could not be sustained. These last three years Thai growth has plummeted. A 1998 growth rate of only 2-3% is projected for Thailand, and 5-7% for Indonesia. Both countries have experienced serious banking crises over the last five years. Many property investments have failed, and corruption made both economies inefficient. On a regional level, both faced intense competition from neighbouring countries also experiencing strong growth. Some manufacturing industries have relocated to countries like Vietnam and Bangladesh. The globalisation that brought good and bad to both economies has made them more susceptible to rapid changes throughout the world. There is no reason why both cannot deal with these changes, provided they have economic managers of the calibre that Prem and Suharto had in the 1980s. Thailand seems to have lost some of its economic vision, and Indonesia's economic management could be better than Thailand's right now. The Chaovalit Yongchaiyuth coalition government, formed in December 1996, appears unable to solve the currency crisis. Its failure became most clearly evident when it was forced to accept a financial aid package worth US$1.7 billion from the International Monetary Fund (IMF). In exchange, the Chaovalit government had to apply strict and unpopular stabilisation measures, such as cancelling government projects, reducing subsidies, reforming taxation and banking, privatisation, and so on. In Indonesia, by contrast, the team of technocrats remains very strong, especially when faced with a crisis. Even though Prof Wijoyo and Ali Wardana are retired from formal positions they are directly involved in solving the currency problem. They enjoy close working relations with Bank of Indonesia Governor Sudradjat Djiwandono, with Finance Minister Mar'ie Muhammad, and with Coordinating Minister Saleh Afiff.


The political consequences of the currency crisis are even more interesting. In Thailand the crisis drew lines of conflict between 'pro-democracy' and 'pro-status quo' factions. The conflict focussed on a new constitution. The democracy faction wanted all members of parliament - also those in the senate - directly elected by the people. At present many senators are appointed. They also wanted more guarantees for civil rights, an independent judiciary, more press freedoms and freedom to organise. In Indonesia the currency crisis created no political crisis. Indonesians think the technocrats are capable of handling the matter and there has been no crisis of confidence in the Suharto government. Indonesia's political elite want the currency crisis resolved quickly. They fear that if it is not resolved before the presidential election in March 1998 it may influence the succession. In Thailand, the currency crisis has strengthened the democratising process. The Chaovalit government was forced to accept a new and more democratic constitution. But in Indonesia there is as yet no democratisation. Many members in the new parliament and MPR, though directly elected, do not come from the common people but from elite families whose political aspirations are merely to maintain the status quo. Priyambudi Sulistiyanto is a PhD candidate in politics at the University of Adelaide, Australia. He wrote this whilst conducting research in Indonesia and Thailand before the IMF also began negotiations with Indonesia.

Inside Indonesia 53: Jan-Mar 1998

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