Indonesia - the Troubled Giant

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Indonesia - The Troubled Giant

Indonesia is a vast country. Its 220 million people are spread out over some 17,000 islands that span an arc 3,200 miles long from Sumatra in the west to Irian Jaya in the east. It is the world’s most populous Muslim nation - some 85 percent of the population count themselves as Muslims -but also one of the most ethnically diverse. More than 500 languages are spoken in the country, and separatists are active in a number of provinces. For 30 years this sprawling nation was held together by the strong arm of President Suharto. Suharto was a virtual dictator who was backed by the military establishment. Under his rule, the Indonesian economy grew steadily, but there was a cost. Suharto brutally repressed internal dissent. He was also famous for “crony capitalism,” using his command of the political system to favor the business enterprises of his supporters and family.

In the end, Suharto was overtaken by the massive debts that Indonesia had accumulated during the 1990s. In 1997, the Indonesian economy went into a tailspin. The International Monetary Fund stepped in with a $43 billion rescue package. When it was revealed that much of this money found its way into the personal coffers of Suharto and his cronies, people took to the streets in protest and he was forced to resign.

After Suharto, Indonesia moved rapidly toward a vigorous democracy, culminating in October 2004 with the inauguration of Susilo Bambang Yudhoyono, the country’s first directly elected president. The economic front has also seen progress. Public debt as a percentage of GDP fell from close to 100 percent in 2000 to less than 60 percent by 2004, and the economy grew by around 4 percent per annum during 2001 to 2005.

But Indonesia lags behind its Southeast Asian neighbors. Its economic growth trails that of China, Malaysia, and Thailand. Unemployment is still high at around 10 percent of the working population. Inflation started to reaccelerate in...
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