Growth Not Greed, Mr. Suharto

The rioting and deaths that accompanied Indonesia's recent election highlight one of the great paradoxes of Southeast Asia. Nowhere in the region has a nation so successfully effected such great macroeconomic policies only to mess up on the micro side. Indonesia has solid fiscal and monetary stability combined with a sophisticated floating currency program that is the envy of all its neighbors, especially the Thais. This has given the country low inflation and strong economic growth for over a decade. But recently, investment has become so concentrated among the family and friends of President Suharto that the benefits of the country's strong economic growth aren't trickling down. Crony capitalism is not expanding Indonesia's small middle class nor is it raising the living standards of most of the country's 200 million people. In fact, it is alienating many local business people and foreign investors who are losing out to the well-connected and the bribe givers.

Unless President Suharto reverses this trend, the election skirmishes that left hundreds dead have the potential of developing into the kind of bloody civil war that left hundreds of thousands dead in 1965. What is to be done? The Suharto government should buttress the capitalist underpinnings of Indonesia by replacing corruption and connections with markets and the rule of law. This is the same road that China must take if the benefits of economic growth are to be spread throughout the population. This means ending the monopolies on natural resources, manufacturing, and distribution held by his family members and opening them up to competition. A chicken costs $6.25 in parts of the country because Suharto connections control distribution. This is an enormous tax on the average Indonesian whose daily wage is only about $2.20.