One of the major casualties of the Asian financial crisis was President Suharto who had been in power for thirty-two years. The crisis was a key point in Indonesia’s history, at the time it was unclear if the nation would make the necessary reforms to move forward or fall into further chaos. In Resurgent Indonesia, Vasuki Shastry investigates the effects of the 1997 Asian financial crisis on Indonesia and the subsequent fall of the authoritarian Suharto in 1998. He then deals with the process of building a democratic nation and the political environment in Indonesia in 2018. The book gives a detailed account of the crisis and recovery at the domestic level but also in the wider geopolitical context.
To break down the 1997-8 period of crisis, Shastry uses a structure borrowed from psychiatrist Elizabeth Kubler-Ross and her 1969 book, On Death and Dying. According to Kubler-Ross the terminal patient goes through five stages when facing death: denial, bargaining, depression, anger and acceptance. Shastry employs these stages as chapter titles to describe how the crisis played out, an innovative structural choice that works. Of course, the nation of Indonesia didn’t die as some doomsayers at the time believed it would.
I will spare the blushes of various commentators who warned us of Indonesia splintering into many unruly pieces, a la Yugoslavia, with great chunks of Sumatra, Kalimantan, Bali, and Sulawesi going their own independent way.
In August 1997 the financial crisis, which started in Thailand, hit Indonesia and the rupiah sank in a hurry once its dollar peg was removed. The International Monetary Fund (IMF) came into salvage the situation. Widespread panic led to a bank run on November 16 but this didn’t reach catastrophic proportions. The situation was compounded by an El Niño induced drought, affecting the rice harvest and leaving the country needing to import large quantities of food.
The strength of Shastry’s writing lies in his intimate knowledge of how financial institutions, especially the the IMF, work. From 1996 to 1998 he was a journalist for The Business Times based in Jakarta, after that he left Indonesia and worked for the IMF. He explores the phenomenon that is the contagion of financial panic and recognizes that nobody has a definitive answer on how to prevent it, as each subsequent crisis is different from the previous one. He makes the point, however, that had the West heeded the lessons of the Asian financial crisis, it would have been better prepared for the crisis of 2008.
President Suharto flip-flopped on whether to follow the IMF plan of restructuring and fiscal tightening. He was compromised by his commitment to the corrupt capitalism of his family and cronies. An interesting anecdote is that one of the local banks the IMF and technocrats in the government wanted to close was owned by the President’s son, Tommy, and another by the President’s half brother:
The two well-connected members of the First Family did not take kindly to the notices of closure.
The thing which brought Suharto down in the end, Shastry claims, was taking away of fuel subsidies at a rate greater than the IMF dictated. Perhaps Suharto in doing this was aiming to formulate chaos that only his strong hand could quell? In May 1998 with prices soaring and riots on the streets of Jakarta, Suharto was forced to resign. The contribution of the reform era Presidents in building a strong democracy and Indonesia’s economy beginning to prosper, largely from the commodities boom caused by demand from China, are put forward as key elements in the recovery.
The book then goes somewhat off track as Shastry uses the links both cultural and economic between Indonesia, India and China to explore the idea of “Chindonesia”—a potential alliance of the three of them, an Asian G3 leading the world in economic policymaking. In this chapter the most telling piece of information is how Indonesia is even further behind than India in terms of infrastructure. In Jakarta, a city of impressive malls but terrible roads, Shastry recognises that facilitating private investment in infrastructure projects is the way ahead. There is long description of the bureaucratic machinations and reforms in the EU, which seems out of context. The section is used as background to put forward the idea that ASEAN (Association of Southeast Asian Nations) member countries must look for greater integration without making the same mistakes that the EU has.
The last two chapters about President Jokowi and Indonesia being the archipelago of potential bring the book’s focus back again. The author is unashamedly under the spell of Jokowi’s charisma and leadership style. Jokowi, a former furniture salesman, is a break from the past in which leaders were often linked with the Army. However, the President faces strong opposition in the 2019 elections from former General, Prabowo Subianto, who will mobilize conservative forces including political Islam. Despite many challenges, Shastry believes Indonesia’s democratic structure and financial system to be robust. He is optimistic about the nation’s future.