Indonesia: Shades of Weimar as Indonesia crisis stokes dissent

Great for tourists perhaps, but inflation is soaring and the currency is falling remorselessly
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Indonesia's currency sank to a new low yesterday, threatening the economy with further pain. Demonstrators in Jakarta called for the resignation of President Suharto, emphasising that the financial problems are fast filtering through to the political realm. Richard Lloyd Parry reports on the frightening unreality of a crisis with no end in sight.

Yesterday evening, after a long hot drive through the mountains of East Java, I shuffled gratefully through the doors of a luxurious hotel in the old Dutch colonial town of Malang. Behind the tile and antique- strewn front hall was a swimming pool surrounded by palms; beyond them I glimpsed glasses and napkins laid out on cool dark wood. The Tugu Park Hotel is the finest hotel in this remote corner of Indonesia; six months ago, a night here cost a very reasonable pounds 60 a night.

But six months ago, Indonesia was another country - an Asian success story, powering along on the back of steady growth, growing investment and robust business confidence. Today it is the world's most stricken economy, and the elegant Tugu Park has been hit like everywhere else. After flashing the old rate card, the hotel's receptionist quoted a price of 300,000 rupiah - not pounds 60, but pounds 15. On checking the day's exchange rate, however, I learnt that in the hours since I set out this morning, it had become cheaper still - more like pounds 12. If the Indonesian rupiah continues its plummet, by the time I check out, I will paying less than a tenner a night for the best hotel in town.

Visitors to Weimar Germany must have felt like this in the 1930s: while local people were carting wheelbarrows of worthless marks to the market, foreign tourists were living off their small change. But we know what happened to Weimar Germany.

It requires little economic understanding to see that the instability and despair caused by currency collapse are hardly compensated for by discount tourism. As Indonesia has become a paradise for foreign cheapskates, so it has proportionally become a torment for ordinary Indonesians. It is the sense of unpredictability, the potential for physical violence and disorder, as well as economic chaos, which makes Indonesia unreal and rather frightening at the moment, as well as exhilaratingly cheap.

At its worst, before the central bank spent its reserves on forcing it back up, the Indonesian rupiah was trading at 16,000 to the dollar yesterday, compared to 2,400 last July. Its closing rate, 12,000 to the dollar, was the third consecutive all-time low in as many days. The investment bank Deutsche Morgan Grenfell estimated yesterday that Indonesia's annualised inflation was running at 60 per cent.

The soaring cost of basic commodities provoked riots and looting in towns near Malang last week. Yesterday, in a prediction that will create chills in the government, the Manpower Ministry predicted that unemployment would increase by one million people, to 3.7 million, by the end of this year.

The prospect of large-scale lay-offs is causing alarm in all the countries hit by the Asian financial contagion but nowhere is the potential disorder deadlier than here. Koreans and Thais at least have the capacity to vote out incompetent leaders and elect new ones, and both have done so in the past few months. Indonesians, on the other hand, are stuck with President Suharto who, after three decades in charge, seems daily less capable of seeing off the crisis. Yesterday in Jakarta, a rally of 200 students in front of the national assembly called for his resignation and the election of the popular opposition figure Megawati Sukarnoputri.

It was Suharto who was supposed to have saved Indonesians from disorder. After independence from Dutch and Japanese colonialism in 1945, they suffered 20 years of gathering chaos under the unpredictable Sukarno, who was deposed in 1965. After a bloody anti-communist purge, Suharto earned heroic status by delivering economic growth, stability and education to his 200 million subjects.

But last week, he was humiliatingly forced to redraft his budget on the orders of the International Monetary Fund (IMF), whose promise of a $43bn bail-out appears incapable of restoring confidence. Yesterday, IMF and Indonesian officials were locked in meetings over the best way to deal with the country's foreign debt, presently worth about $140bn, and rising with every slip of the rupiah.

Suharto's decision to stand for the rubber-stamp presidential elections came in the face of unprecedentedly direct calls for him to stand down. But in the past two days, investors, diplomats and progressives in Indonesia have found themselves facing a prospect which makes even five more years of President Suharto seem preferable by comparison.

This week Suharto dropped heavy hints that he will choose for the vital job of Vice-President 61-year old Bacharuddin Jusuf "BJ" Habibie, theminister for research and technology.

Mr Habibie, a powerful political presence and close friend of the President, is perhaps the man least likely to endear himself to the bankers and investors who are deserting Indonesia. As a politician, he has more in common with the state-building interventionists of 1960s Japan and South Korea than the technocratic free marketeers who run the IMF and the World Bank. Publicly, his critics speak of Mr Habibie as an unrealistic "statist" - last week his personal project to build an Indonesian passenger jet lost its government subsidy, on the insistence of the IMF. Privately, with his vast technological schemes and his unorthodox economic theories, many regard him as a crackpot. If he is chosen as VP, Habibie would succeed as President in the event of the 76-year old Suharto's demise, a prospect which has propelled the rupiah still lower.