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Archive for the ‘Indonesia’ Category

Suharto — A Bandit No More

1 February, 2008

So Suharto is no more (obituaries here and here). The ex-general ruled Indonesia for 32 years, after the military took control in 1965. Founder of the Nation, Sukarno, was kept on for a couple of years, but Suharto and the military governed. Suharto was proclaimed president in 1968 and his ‘New Order’ show had a long run: he was finally forced from office in 1998 when Indonesia was whacked by the Asian Financial Crisis. (GDP dropped by 15%, forcing a humiliated Suharto into the hands of the IMF — see the famous pic of Suharto and then IMF boss Michel Camdessus here).

Suharto was complicit in the slaughter of 500,000 to a million Indonesians during the 1965-67 army-backed massacres of communists and others (see Human Rights Watch). (The movie ‘The Year of Living Dangerously’ remains a highly watchable account of the time. Go here to see a clip). The 1975 East Timor invasion killed maybe 200,000 more (with further atrocities in Aceh, Papua and the Moluccan islands). “Suharto has gotten away with murder – another dictator who’s lived out his life in luxury and escaped justice,” said Brad Adams, Asia director at Human Rights Watch. “But many of Suharto’s cronies are still around, so the Indonesian government should take the chance to put his many partners in human rights abuse on trial.”

How much did he steal? One (government) estimate is US$ 441 million between 1978 and 1998. The family took more than either Marcos and Mobutu, reckons Transparency International.

But as venal and vicious as it was, Suharto’s dictatorship clearly differed from those of Marcos and Mobutu. For Suharto achieved some 30 years of growth and poverty reduction. This was unexpected: Indonesia in the mid-1960s was written off (Africa was the bright star). “No economist holds out any hope for Indonesia” said Nobel Laureate Gunnar Myrdal in Asian Drama, 1967). Poverty and hunger fell steadily. From 1967 to 1996 per capita income rose by 5 per cent a year, with those below the poverty line seeing their income rise at the same rate (or more). From the mid 1970s to the mid-1990s, poverty fell from 40% to 11% — one of the most successful episodes of pro-poor growth in history (see World Bank). (Poverty then jumped to 22% during the financial crisis). Meanwhile, neighbouring Philippines — which with its more educated population looked a much better bet — just went down hill under Marcos and his cronies.

This is not to defend Suharto or his family and friends. But it’s important to understand why his dictatorship wanted economic growth while Zaire’s Mobutu didn’t (Mobutu once advised his fellow dictators not to build any roads: they only make life easier for rebels).

Was it Indonesia’s technocratic economists? Seems so. They kept the country from succumbing to the ‘curse of oil’ (that killed Nigeria’s growth in the 1970s: see Brian Pinto’s 1987 paper which remains a classic). The IMF and the World Bank made much of this when, in the 1980s, they started to write-up the Indonesia story. Suharto told his macro-economists to end the country’s hyperinflation — inherited from the chaos of the Sukarno years. And end it they did. They in turn taught economics to the generals-turned-politicians. The macroeconomics seemed to be sound (at least until 1997). And the United States, Japan and the multilateral donors, provided generous aid — eager as ever to buy into a success story.

Did Suharto realize that you can only cream off so much before growth collapses (and with it your own wealth)? It seems so — at least until the latter years when the children became troublesome. Entrepreneurs got to make money (especially when in business with the Suharto clan). Investment was strong. Suharto acted as a ’stationary bandit’ (willing to invest to maximize the take) rather than a ‘roving bandit’ (take the money and run) — as Mancur Olson described. (One exception from the start: timber and the massive environmental damage of unsustainable logging — which still goes on — making Indonesia the third largest emitter of greenhouse gases after the United States and China). His wife, Madame Tien, took her cut (becoming known as ‘Madame Tien Percent’) but otherwise reigned in the children to avoid killing the golden goose. After she became ill, the kids ran amok: one managed the national clove monopoly, pocketing the money that should otherwise have gone to poor farmers. The cosy elite-business relationship hit the rocks with the Asian financial crisis — but until then it delivered the growth and jobs that Mobutu (and Marcos) didn’t.

Did the rural population matter to the elite? Seems so. Hunger stalked the land in the mid-60s. Getting the rice economy back to work was imperative for keeping Suharto in power. Once the economy stabilized in the late 1960s, it grew strongly, with the oil revenues being reinvested into rural villages through infrastructure and services. Indonesia benefited tremendously from the new Green Revolution technologies then coming on stream. Farm GDP increased by nearly half from the 1960s to mid-1990s (see Peter Timmer’s paper). And rural inequality fell. Agricultural policy received high marks from the development economists of the 1980s. Villagers mattered politically to the elite while they didn’t in much of Africa. And the elite made lots of money through BULOG, the food distribution agency.

Fascinating questions. Meanwhile Indonesia struggles on. There remain some 40 million people still in poverty. And many of the victims of Suharto and his friends still wait for justice.

Posted in Asia, Chronic Poverty, Conflict, Growth, IMF, Indonesia, Inequality, Justice, Nigeria, Politics, World Bank, food security | 1 Comment »