With the oil booming years since the 1970s, Indonesia's average economic growth was relatively high, 6 - 8% per year. In the last two decades, the countries in the Southeast Asian region had developed their economies progressively. Some of them were hailed as new economic tigers. This stable economic growth was supported by political stability, security control, and the confidence of foreign and domestic investors.
Unfortunately, Indonesia and other ASEAN countries are now being faced with an acute monetary crisis. This monetary crisis could have been triggered by external and internal factors. There has been an emerging pattern where international fund managers have made currency trading a new business field. These professional speculators were very active in Asian stock markets. Being aware that the ASEAN currencies - as a consequence of high economic growth - were overvalued, they started speculating. They bought or sold certain currencies with a wide profit margin. Meanwhile, among the internal factors was the weak economic base. When a country's economic base is weak, a monetary crisis could lead to economic turbulence.
As mentioned above, this monetary crisis was not only overwhelming the Indonesian rupiah, the currencies in other ASEAN countries were also affected. However, the downfall of the rupiah was much more serious. On 7 October 1997, the rupiah had lost 55% of its value against the US dollar, compared to other ASEAN currencies which fell relatively less being within the range of 11 - 41% (1).
In Indonesia it caused 20% inflation which quickly absorbed the foreign stock exchange and the further impact was an economic crisis. Facing this reality we could no longer boast that our economy was fundamentally firm. The Indonesian economy which had been built in 30 years collapsed in just a few months.
Eventually, the crisis slowed the economic growth which resulted in decreased demands. Industries went bankrupt and were shut down because - as is usual in the industries of developing countries - the raw and basic materials were still imported. It pushed production costs upward. When these two diametrically opposed factors - the decrease of demands and the increase of production costs - interact, crisis is expected.
According to the recent International Monetary Fund (IMF) calculation, the 1998 economic growth of Indonesia would be -5%, compared to that of 1997 which was +5%(2). This figure should not be called 'economic growth rate', but rather 'economic declination rate' being negative. We can imagine when the economic rate becomes -5, more businesses will be closed down. This implies that more people have to be stood down from jobs. This job loss may well leave millions of professional managers, employees, and workers unemployed, thus stimulating social crises.
In this crisis, of economic decline, it will not be possible to find a new job. In the past, the unemployed could afford to fulfill most of their secondary needs, but today they find it very difficult to meet even their basic needs. The goods, though still available in the market, are priced prohibitively.
"In the past 9 months, until 21 March 1998, the number of dismissed workers had been 133,459. When this figure is added to the number of existing unemployed, it is projected that this year's unemployment will increase to 13.6 million." (cited from Republika Daily, 30 March 1998, p. 1, "Wabah Pengangguran" by Dawam Rahardjo). Who will help them?
It is a primitive human characteristic to strive like cannibals in order to meet basic needs. The great number of unemployed and the accumulated problems could easily trigger social envies, hostilities, and anarchy in community life.
The government has made many attempts to recover the situation. But most of these did not work. In the short term, the government launched some 'market operations' by supplying primary needs, at affordable prices, to anticipate the lack of goods in the markets. These operations are called 'operation of sembako' (sembako means: the nine primary consumption goods which includes rice, flour, etc.). The goods were in short supply, housewives buying in large quantities for bleak days looming. This situation was worsened by certain speculative distributors who hoarded goods in their warehouses, with the intention of selling them when the price peaked. Again, the poor families could not afford much.
These government steps were sporadically able to cure the symptoms, but not the roots of the problems. However, in its implementation, these consumption goods had been bought up almost entirely by rich wholesalers before they came to the public or markets. Then these wholesalers sold the goods to consumers at higher prices than those dictated by the government for market operations. The government has shown fine goodwill, but in fact, it is, as always, very weak in supervising and controlling their subordinates. At any rate, how long can they provide these 'fish' schemes to feed their people?
The government made another effort, by staking the nation's dignity: a standby loan recovery package was requested from international fund institutions through the International Monetary Fund (IMF). It is an interesting phenomenon to investigate. Would the fresh standby loan poured in by the IMF be pure as a financial assistance, without political content? How could we agree to 50 conditions dictated by IMF in only 'one' hour, without any reinforcement? We think that many of the conditions were sensitive to our long-running development strategies, viz., unconditional permits for international franchise companies to freely operate in Indonesia, removal of government subsidies on certain basic consumption goods, etc.
Again we question, is it sincere goodwill? We know that the US has 23% of votes in IMF policy making, and the European Community possess 19%(3). Why did the US hesitate with the concept of an Asian Monetary Fund proposed by Japan to recover the Asian economic turmoil?(4) Is there any historical evidence to show this was in favour of the Muslims? To date, the IMF has poured US$3 million of its new loan, the IMF has on many occassions warned Indonesia to be consistent with the 50 conditons plus 5 additional ones they introduced. They insisted on attaching their permanent professional executives in Jakarta to monitor and control the recovery package. On one hand, perhaps the strong pressure from the IMF could be a lesson to the government of Indonesia to improve their performance, to stick to political and economic reforms, to be more clean and transparent, and to be committed to supporting small-scale industries. However, the most certain thing is that the IMF has its own hidden agenda: that is to ensure Indonesia's continuing dependence on them.
Viewing the worsening conditions and the restoration efforts slow to show yields, university students, intellectuals, and other critical societies began raising their voices to pronounce their aspirations. Their calls were for reformation in politics, economy, democracy, laws, human rights, etc. At this stage, the protests were sometimes coloured by fighting between protesters and security officials.
Many remarked that their actions were meant to free their ideas for recovery from bottlenecks. They did not see the possibility to express themselves through their representatives in the House of Representatives whom they had chosen in the general election a year ago. They believed that most of the House members had become impotent to respond. They yelled protests on campuses and sometimes down in the streets.
In the course of the protests, some people were killed, and many more injured - both from protesters and security officials - and some protesters were reported 'missing', though some of them have since been found.
If the government does not tackle these crises and demonstrations wisely, the worst-case scenario could be: an emergency condition. If this comes about - and I really hope this will never be - the most painful impact would be on the people and dhu'afa which constitute the majority among the 180 million Muslims in Indonesia, and the invisible international conspiracy will have won the war.
Previously the catastrophic impacts of the monetary crisis on Indonesia have been described where this factor was more likely to be blamed as the root of the economic crisis. Was that true?
In my opinion, the monetary crisis was not the absolute root of the turmoil. It was only a trigger or an agent of further implication. Actually, this monetary crisis was caused by certain basic factors, two of which are explained below:
The system which firmly grips the international economies is the capitalist system. This system has allowed the capitalists to unfairly exploit the labourers under their control. They oppress the weak, and accumulate wealth in one hand or within a family. In this society the distribution of welfare would meet a deadlock. They greedily race, hunting wealth, ignoring moral ethics.
Even though I do not fully agree with the Malaysian Prime Minister, Mahathir Mohamad, I support his allegation that the activities of the greedy local and international fund managers could be regarded as a kind of crime. However, we can not yet do much anticipating them since we have standard and limited ways to stand against them on the one hand; on the other, they are at liberty to operate in different ways for optimum capital gains. They are very strong and well organised. As evidence, the Malaysian ringgit fell down immediately(5).
The interest-based monetary system today has become a supporting instrument to the capitalist economic system within which business people have made currency trading a commodity in the money markets. One of the continuing excesses of this system is the mental attitude of gambling: little investment with a huge revenue, instant profits without hard work, ignoring the losers' anguish, and speculations. The speculators with these mental attitudes - local or international fund managers, wholesalers, etc. - could be the reason behind the fall of the rupiah, though we can not put all on their shoulder because there could be yet another contributing factor.
Corruption, collusion, manipulation, and nepotism have dominated pretty well most of the Indonesian economy. This overall condition is conducive of weakening the functions of control. The cases of Duta Bank and Summa Bank bankruptcies, and the flight of Rp 1.3 trillion of the Indonesian Development Bank (Bapindo) by Edy Tansil were prejudged to be caused by mismanagement and under collusion with the business people, bankers, and certain high-rank officials who endorsed references.
Collusion and nepotism have largely contributed to the gloom of a small number of rich conglomerates, because they had monopoly license on certain strategic business efforts, which were ideally controlled and managed by the government since they were related to the primary needs of the community. These local capitalists - whose number was less than 200 or less that 0.0001% of the Indonesian population - enjoyed the privilege at the expense of the country's wealth.
As they were in the vortex of power, they also gained loans facilities from banks very easily. From this point their businesses became, octopus-like, seizing all that they wanted. One of the business cores they established was the introduction of inter-group banking to support other business sectors. Within this cycle, the liberal capitalist economic system seemed to run smoothly in Indonesia.
Having a strong lobby they also accessed guaranteed short-term offshore loans. Most of the loans were invested in long term investment schemes. According to the data from the Indonesian Central Bank (Bank Indonesia), the amount of private sector, offshore debts was exceeding that of the government's - US$67-69 billion compared to US$66,00 billion(6).
When the rupiah started falling last year, most of the private sector's offshore debts were on due periods, so they bought dollars to pay their debts which immediately caused the dollar rush and increased its value against the rupiah. However, their debts remained large and many. Many of their banks liquidated. Investors' confidence was gone. This 'master of local debtors' reaction was believed to be one of the causes which pushed the monetary crisis to economic turbulence. Ironically, and unjustly, when they were rich before the crisis, they exploited and enjoyed the country's wealth and the rights of the poor, and now, bankrupt, they still burden the poor people who had nothing to do with the cause of the monetary crisis.
As the followers of Islam, we Muslims believe that with every event, even more so a mushibah (calamity), Allah (swt) always gives a hikmah (lesson). To those who think, it is a way used by Him to remind us to come back to the right path.
When there are no other isms which can cure the illnesses caused by the capitalist system, Islam is the only answer. Why could communism and fascism never be the choice? Because capitalism, communism and fascism were born from the same womb: materialism. Not Islam.
We believe Islam is not similar to these isms. Islam is a minhajul hayah (a way of life). It is a comprehensive religious system which was endowed to guide all humanity to the worship of the Oneness of Allah (swt). Its teachings are very simple and suitable to the nature of mankind. It does not only regulate the relations of man with his/her Creator both individually and in jama'a, but it also regulates the relationships between man and nature, and man and man (muamalah).
In economic life, Islam encourages Muslims to work hard to earn wealth with which they can perform worship to Allah (swt) more perfectly. All of their activities are ibadah (worship) dedicated to Him. They are pushed to work in halal (lawful) fields of occupation. Islam forbids interest, and the gambling involved in speculation:
"Those who devour riba, shall rise up like men whom Satan has demented by his touch. This is because they claim that buying and selling (trade) is but a kind of riba; whereas Allah has made trade lawful and riba unlawful.
"Hence, who ever becomes aware of his Sustainer's admonition, and thereupon desists (from riba), may keep what he has already gained and it will be for Allah to judge him, but as far as those who return to it - they are destined for the fire, therein to abide."
With this belief in mind, it is my opinion that currency trading is not a lawful commodity from an Islamic point of view. Nevertheless, I am not against the existence of monetary supporting devices, viz. stock exchanges, banks, etc., as far as the management practices are under the rules of shariah guidance. the modern world requires reformation in monetary facilities. Therefore, Islamic daawah organisations should encourage and cater for the 'ulama, and the Muslim monetary practitioners have to uphold this chance to do further study and research to prepare certain monetary instrument to support the future implementation of Islamic monetary systems.
Islam approves of individual ownership. However, Islam is very concerned about welfare distribution through zakat and the inheritance mechanism. In this way Islam safeguards both private and community rights at the same time. In this system, Islam does not give even narrow encouragement for the growth of capitalist and communist economic systems.
In the economic sector in Indonesia, the government had accommodated shariah banking system with the inception of Bank Muamalat Indonesia (BMI), the establishment of 1300 units of Baitulmaal wat Tamwil (BMT) and 70 units of Shariah Community Credit Bank (BPR) as the operational partners of BMI, spearheaded by the Indonesian Intellectual Society Association (ICMI), and the Badan Amil Zakat, Infaq dan Sadaqah (BAZIS). Though not all of them have shown good performance quantitatively and qualitatively to meet the needs of the Muslims on Islamic monetary systems. As a matter of fact, some Muslims themselves have not yet sincerely welcomed this system as their arteries have been pumped up with capitalist blood. They perceive the Islamic monetary systems as awkward, irrelevant, and too complicated. We do not live in the Arab worlds and in the 'Camel Era', they say, Na'uzubillah!
In order to yield a more effective Islamic economic and monetary system we need strong and full support from the Government. But they seem to be not really serious. They still believe that the interest-based system is effective as a 'conventional' system - a term used, a euphemism for riba-based monetary systems.
Like other liberal countries, the monetary system existing in Indonesia has pushed the banks and financial institutions to function as profit centres, without considering the debtors' difficulties. Any profitable practice is allowed. On the contrary, Islamic monetary systems are more likely to put the social role forward, though profits are also taken into account as long as they are not against the shariah. Even though, in principle, conventional banks devote themselves to all levels of customers, in practice, they tend to pay more attention to those who have capital, sufficient credit collaterals, and internal connections. If you do not fulfill these criteria, it would be difficult to secure a credit facility with them. In the Islamic system, just principles are highly appreciated, profit and loss sharing, and prioritising the dhua'fa and the less fortunate empowerment, is considered important.
This crisis should teach us a lesson that the world's economies tend to be inter-dependent, or at least, inter-influenced. Today, the national border is just a geographical feature, but the real economic border becomes less and less apparent. An overheated economy in a country would quickly influence that of others'(7).
Thus, it is required to develop stronger economic fundamentals, for example, encouraging the export industry, promoting the inception of an Islamic Monetary Fund in order to establish a fairer and self-reliant international monetary system, and introducing the implementation of Islamic monetary principles in a more consistent manner. Moreover, insisting on the reformation of government officials' mental attitudes in order to create a clean, honest, and amanah government is the most important step to be taken first.
The implementation of the shariah monetary system should gain full support from the authorities since theIslamic economic system cannot be separated from the principles of Islamic fundamentals, ideology, culture, and politics as a whole(8). Here we find that the re-inception of daulah (wealth) and international khilafah (viceregency) mechanisms are urgently required to be implemented .
This system should be implemented with comprehensive supporting devices in order to harvest expected outcomes. For example, when BMI does not yet function optimally, the zakat and baitulmaal systems should tackle the responsibility.
If the Islamic monetary systems, BAZIS, and BMT had run well; if the authorities discarded the capitalist system gradually; had the officials been committed to the principles of amar ma'ruf nahi munkar in an istiqamah manner, both as an individual and part of jama'iyah, the monetary crisis would have not overwhelmed Indonesia. If it had, it would have taken a short recovery time and avoided today's catastrophic sufferings.
As Muslims wherever we are, we should learn from Indonesia's lessons as a reminder from Allah (swt) about the urgency of establishing the Islamic economic and monetary system for the welfare of mankind. Hence, it is hoped that we will be more sensitive to the reformation messages, in order to come out of the crisis sooner - never to face the same fate in future. It is emphasised that the Islamic system is a rahmatan lil 'alamin (mercy to the whole universe).
We are optimistic that the Islamic economic and monetary system could be a medicine to heal the illness of the contemporary 'man-made' economic systems. We not only see the trends, but our optimism is based on belief in the truthfulness of Allah (swt)'s promises. Yet, we are aware that the problem is not simple. It can be very complicated. To reform established economic systems is as difficult as to introduce a new way of life to the human race. It requires a process, time, and a long struggle agenda. However, it is not a problem. In our times we may not reap the yields, the most important thing is that we have done our best and prepared the next generation to uphold a firm confidence in the Islamic system. Wallahu'alam bith Thawab (Allah knows the best and the Correct).
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