INDONESIA: Drastic Medicine

President Sukarno apparently believes that a government that prints money can also take it away. Last week, faced by skyrocketing inflation that had already run the dollar value of the rupiah to 155 on the black market (against the official rate of 11.4 rupiahs to the dollar), Sukarno demanded action from his Finance Ministry.

He got it. Overnight all 1,000-and 500-rupiah notes were arbitrarily cut to one-tenth of their value (though smaller bills were not changed); 90% of every bank deposit over 25,000 rupiahs was frozen, so that the money could be seized for obligatory long-term loans to the government, and banks were closed for two days to straighten out their accounts and report to the government. A new exchange rate of 45 rupiahs to the dollar was proclaimed. All this was done to the accompaniment of denunciations by Sukarno of “vulture capitalists.” Added he: “Whoever scoops up wealth at the expense of the public, whoever disrupts the public economy, will be arrested, will be taken to court, will be punished severely, and if necessary will be sentenced to death.”

The powerful Chinese community, numbering about 2,500,000 and controlling much of the Indonesian economy, was sure that Sukarno’s drastic measures were directed against it. The public seemed to like the idea of soaking the rich and the alien, while leading newspapers agreed that at least something drastic had to be done. But as business, with no capital to operate, ground to a standstill, the first reaction to Sukarno’s bold move was stagnation and frustration.