So I’ve seen some speculation out there on the interwebz with regards to possible historical comparisons that might add useful context to the crisis here in Indonesia. In the worst case scenario, some of my pals have suggested that the financial contagion might be on par with the 1997-1998 Asian Financial Crisis; the death toll might equal that of the mid-1960s; and the tension between provincial leaders and the central government in Jakarta recalls that of the 1950s when several provinces tried to break away, precipitating a few years of civil conflict as Sukarno brought them back into the country’s orbit by force.
I’m all for engaging in spirited debate about the nature and possible outcomes of the current situation. But these comparisons leave me a little bit cold. For one, they blithely posit a nightmare future scenario in which the Indonesian economy is experiencing economic collapse, civil war and mass death reaching into the hundreds of thousands. This is not something one should just casually drop into the conversation without putting some real thought into it. Especially for someone like me, who lives in Indonesia, you read such things and it can be frightening. So let’s go through these scenarios one by one.
The Asian Financial Crisis was set off by a massive devaluation of the rupiah beginning in 1997. Over about a year and a half it lost something like 600% of its value. What this did was lay bare the fundamentally toxic structure of Indonesia’s economy, in particular its banking sector which had basically been propping up companies closely tied to Suharto with bad loans. Most of Indonesia’s economy during the end of the New Order had been converted in some form or fashion into a money-making boondoggle for Suharto, his family and his friends. During the good times this was fine as far as plunder state resources goes, but with the currency shock of 1997 the whole house of cards came crashing down. How likely is this to happen again?
That’s impossible to say, of course. But the banking system, the political system, and the economy are on much sounder footing now. This time around, Bank Indonesia has over $100 billion in foreign reserves with which it can defend the currency and buy government debt. That will help offset capital outflows, though of course not indefinitely. And even if the rupiah does depreciate to 20,000 to the dollar, as seems quite possible, that is still far, far less of a tumble than it took in the 1990s. Would it be bad? No doubt. Would it be as bad as 1998? I would cautiously say no.
The banking system is also very different now; it’s better capitalized, better regulated and far less of an overt slush fund for the ruling class. In fact, one of the biggest difference between now and then is that if you don’t believe me you can hop online and take a look at the audited financial reports for any of the major banks. You can see their loan to deposit ratios, how they fund their operations, how their debt is structured. That level of transparency in the banking sector was unknown in Suharto’s time. So is it possible that major financial and economic collapse is coming? Sure, it is possible. This crisis is unprecedented, and we don’t know how long it will go on for. But Indonesia’s financial system is much better prepared to handle the crisis now than it was in 1997.
The comparison to the 1950s is even more out of touch. In the 1950s, Indonesia had only been an independent nation-state for about a decade. It was struggling to define itself and what kind of country it wanted to be and decide basic things like whether it would be a parliamentary democracy based on a federal system, or a unitary state. Western powers, particularly the Dutch, were interfering heavily in the process and trying to influence it.
From 1950 to 1957 Indonesia tried to be a parliamentary democracy, with a sort of federalized structure. It didn’t work, and eventually they returned to the original 1945 constitution which called for a strong, centralized unitary state. This was a time of extreme confusion and flux, as the country tried to figure out its future trajectory in the aftermath of World War II, seeking to accommodate very diverse social actors spread out along an enormous archipelago. It was in this context that some of the provinces attempted to split off, and were forced back in. Right now provincial governments are bickering with Jokowi about whether they have the authority to impose lockdowns. While the tension between center and periphery in Indonesia is always an active one, the context for these tensions is so very different from that of the 1950s that comparing them tells us very little. I think anyone pondering secession right now doesn’t really know their history.
The last one is whether Indonesia is on the brink of a mass death event, similar to the mid-1960s when the government and the army (with encouragement from the United States) carried out an anti-communist pogrom that killed hundreds of thousands, maybe more. This time, it wouldn’t be a pogrom but the uncontrolled spread of COVID-19 causing hundreds of thousands to perish given Indonesia’s inadequate health care system.
Look, I mean - there is modeling that suggests this is one worst case possibility. But the fact is we need more data. The testing is utterly meaningless. We need to see stats on hospitalizations and burials. That will give us a much more accurate sense of the disease’s progress in Indonesia, and how worried we should be. Some level of social distancing has been adopted in most places, so that should help slow the transmission.
Reporting by Reuters showed that about 1,000 more people were buried in Jakarta last month than in a typical month, which suggests that yes the health system in Jakarta is starting to feel the strain and it is resulting in an increased loss of life. That is not unexpected; the question is how fast the increase is. Those numbers in Jakarta still don’t come anywhere near the fatality rate we’ve seen in other cities like New York, so the picture remains unclear at this point.
I myself think it is premature to claim that 500,000 people will soon be dead, mostly because I simply have no idea. If your goal is to scare policymakers into action, I sort of understand quoting those kind of apocalyptic numbers. But I would just urge everyone, particularly those with large public platforms, to be cautious in the way they discuss the pandemic in Indonesia because there remains a high degree of uncertainty. In a time of crisis, casually tossing off these kind of worst case prognostications can become a kind of self-fulfilling prophecy, by fueling panic.
