A Mirage of Business as Usual Before Jakarta Beats the Bust

One year after Indonesia's economic boom went bust, gross domestic product has declined more than 15 percent, the currency has lost 80 percent, inflation has exceeded 60 percent and half the country's 200 million people have fallen into poverty. Riots rocked the capital and other cities in May, leaving more than 1,000 dead. "No country in recent history, let alone one the size of Indonesia, has ever suffered such a dramatic reversal of fortune," the World Bank wrote in a recent report.

But tourists arriving fresh from abroad have to look hard to see anything but a bustling metropolis. On Sudirman or Subroto, the main thoroughfares, traffic is almost as nightmarish as it was a year ago. Swimmers jockey for space in the Hilton pool. The Zanzibar is nicknamed Saunabar, it is so tightly packed with nightclubbers. Sales at the upscale Hero supermarket are higher than last year. Most important, the rupiah has rallied to nearly 11,000 to the dollar, compared with a June low of 16,000.

"Business is picking up a little," says Cees de Koning, country representative of ABN Amro.

Indonesian exports have kept up, despite widespread rejections of letters of credit, a slump in world commodity prices, and a collapse in demand throughout Asia. Many of Indonesia's commodity-rich outer regions have seen incomes rise. In addition to registered exports, smuggling and small-scale exports in items such as electronics, soap, and motorcycles have helped fill the pockets of some entrepreneurial traders in Java. Trade should improve further now that foreign banks have agreed, as part of a wider debt rescheduling agreement, to reschedule loans to Indonesian banks over four years and accept letters of credit up to the $5 billion level of April, compared with $3.5 billion now.

And Indonesia has obtained $7.9 billion in aid pledges, and another $6.2 billion in aid and debt rescheduling, which should be enough to plug the 8.5 percent hole in the budget deficit. President B.J. Habibie's new government heralds the aid as a vote of confidence for its reforms, although some foreign officials regard it as simply humanitarian aid.

So some Indonesians, as they queue up to enter the local Hard Rock Cafe and wonder how so many people can afford to come, are asking themselves: Has Indonesia's economy hit bottom?

Not yet, is the consensus. "There is an improvement in the situation but it is not yet a turnaround," Mr. de Koning says. "There is cash flow - but only cash flow. The survival technique is not paying the foreign lenders." A US banker says, "The impact of all this is still winding its way down the system. There are companies out there that will survive only so long, given that the economy is still shrinking."

Many of the signs of recovery are indeed illusory. The Hilton pool is a cheap alternative to the upscale health clubs. Hero supermarket sales are up in the devalued rupiah but down in units, if only by 10 percent because they cater to an elite who had dollar savings and is less affected than the average Indonesian. And the country's traffic in new automobile sales is down from 40,000 units a month to 5,000.

Many companies are trading not in products but in assets, selling equipment secondhand to raise cash for wages and, in many cases, to keep up appearances and avoid losing face. One finance director says, "It's like walking with your knees tied together. You can't invest, you can't expand. And eventually you still have to pay off your debts."

Even casual tourists will see the children who knock on taxi windows, pointing at their mouths or plucking a dilapidated guitar to beg for change. They were not there a year ago.

- S. T.