Seth Mydans, Tangerang – When economists worry about Indonesia's slump – its sinking currency, its ailing banks and its nearly $40 billion bailout package – they worry about people like Jumaluddin, a low-paid factory worker with a ready smile and a precarious future.
In nine years at a shoe factory here, he has begun to save a small nest egg. He is the first in his family to do so, and has been able to dream about an even better future for his 3-year-old son.
But his country's economy – after a prolonged economic boom that has produced office towers, traffic jams and relative prosperity for millions – has sharply slowed. As the country's macro-economic ills trickle down to people like Jumaluddin, who has already seen friends and colleagues lose their jobs, many are bracing themselves for a period of rising prices, high unemployment and, perhaps, social unrest.
For international investors and business executives, this is a wait-and-see time.
"It is a very volatile environment: No clear pattern has been established in terms of the exchange rate," said Daragh Maher, an economist at the ING Barings securities firm in Singapore. "It's not all-bets-off at this point, but I would be surprised if projects haven't been delayed or are waiting for a more stable environment."
While the economic crisis is not expected to prevent President Suharto, 76, from winning re-election to a seventh five-year term next March, Indonesia appears to have entered the most painful and delicate period since Suharto came to power in 1965.
This was underlined by reports that Suharto was ill – initially denied by family members and Indonesian officials, but given fresh credence on Friday, when State Secretary Moerdiono announced that the president was canceling his travel plans, including a trip to Malaysia for a meeting of regional leaders. Moerdiono said that Suharto was not sick, but that he was resting on doctor's orders.
The Indonesian currency, the rupiah, plummeted to a record low Friday, dropping 11 percent, to 5,015 against the dollar.
"Indonesia has never had a combination of an economic crisis and a political crisis at the same time," said Laksamana Sukardi, a banker who supports the country's politically weak opposition.
"We have to change," he said. "We can't any longer ignore the problems in our fundamental economic structures: the monopolies, the corruption, the lack of transparency, the lack of an even playing field."
There have been mixed signals as to whether Suharto is serious about changes, particularly those that might impinge on the economic interests of his family and friends.
While the country's belt-tightening is beginning to affect farmers and workers who live on the edge of poverty, the long-term effects on those close to the president remain to be seen. A bank controlled by the president's second son, Bambang Trihatmojo, was forced to close in November because it had made excessive loans to companies controlled by shareholders. But Trihatmojo was able to buy another bank days later.
The crucial test, said Dennis de Tray, the Indonesia representative of the World Bank, is openness – the kind that will reassure investors that the rules of competition and fairness are playing their roles.
"But you don't throw a switch and fix transparency," he said. "It takes a while to do that."
The economic crisis has bitten deeply into the lives of many workers. One-fourth of the 8,000 employees at the factory where Jumaluddin works have lost their jobs in a month. At the same time, prices for staples like rice, vegetables and cooking oil have begun to rise.
"I'm having a tough time," said Jumaluddin, 32, who lives with his wife and son here in this overcrowded factory town just west of Jakarta, the capital. Like many Indonesians, he uses only one name.
"It's not like before," he said, his tiny dormitory room lighted by a candle because the electricity had failed. "I don't have enough to live on. And there are all sorts of rumors about more people being laid off. The future's a question mark." With a population estimated around 200 million, Indonesia is the world's fourth-largest nation. Its steady economic growth rate until recently of about 7 percent a year had been just sufficient to absorb the 2.5 million young men and women who entered the work force.
That growth is projected to fall to about 5 percent this year, and the International Monetary Fund, which led in devising the bailout package, has set a target of just 3 percent growth for Indonesia next year as part of the austerity program.
"That means 2.5 million people are going to have a very hard time looking for jobs," said Sofyan Wanandi, a leading businessman who heads the Gemala Group, a conglomerate with interests in banking, insurance, automotive parts and pharmaceuticals. "I foresee in the next six months to a year layoffs of about a million people all over Indonesia. And there's not much the government can do.
For many young people, the deceleration of the economy is baffling but not disastrous. "If I lose my job, I'll just go home and get married – if anyone will have me," said Sripa, 22, a young woman in the workers' dormitory near the shoe factory here. Her friend Suparni, 20, still saw opportunity. If the layoffs affect her factory, she said, "we'd look for other work."
"We'd start our own business," she continued. "Why not? We can start small and grow big."
Such ingrained optimism has helped keep the economic and political structures of the country intact.
"The growth of the economy has always been a buffer against political dissatisfaction," Wanandi said. "That's why we have had stability for the past 30 years. Now we face the problem of lower growth. So there could be more of these accidents."
He was referring delicately to riots that have flared through the country for 18 months or so, fed by grievances ranging from ethnic and religious clashes to police misconduct to land seizures by powerful business interests.
The Asian financial crisis that began in Thailand with the floating of its currency early in July reached Indonesia this autumn, sending the rupiah sliding.
On Oct. 8, the government accepted a $10 billion standby loan from the International Monetary Fund, accompanied by help from the Asian Development Bank, the World Bank and other sources that brought the package to $18 billion.
In addition, Singapore, Japan, Australia, Malaysia, Brunei and the United States – with a $3 billion contribution – are providing additional help. The total package would amount to nearly $40 billion. The country put together an austerity program that includes a gradual reduction of import tariffs, deregulation of some government-supported commodities, a reduction of taxes and other obstacles to exports, and a review of public spending.
"It's quite a major policy shift," said Neil Saker, an economist at Societe Genrale Crosby Securities in Singapore. "They are making fiscal, monetary and structural changes and delivering everything that the IMF, the World Bank and their own technocrats have been arguing for a long time."
He expressed reserved optimism that Indonesia's healthy growth could resume in 1999, but said that 1998 would be "a very difficult year."