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Crisis 117 117 6 Crisis Just before I arrived in Surabaya in the final week of January 1998, the rupiah had collapsed to a New Order low of Rp17,000/US$1. The rupiah’s downward spiral had begun six months earlier, marking the start of an economic crisis that would be more severe than in other Asian countries (Evans, 1998: 6; Johnson, 1998: 15). My first awareness of the crisis came a few days later, when I was visiting an Australian engineer who had been working on a building project in Surabaya. He was languishing in a hotel, waiting for payment from the property developer that had hired him. Payment never came: the rupiah’s decline had made each dollar six times more expensive and left the property developer unable to service the short-term foreign currency loan he had taken out to fund the project. Elsewhere in the city, construction was slowing rapidly. Permits for commercial buildings would drop by half over the course of the year, and new construction would stall as credit to the sector fell by over 75 per cent (SDA, 1999: 41, 375). For Dinoyo residents, Surabaya’s stalled construction was epitomised by the unfinished apartment building that towered into the sky on the old BAT factory site. Like the other unfinished buildings poking through the haze of Indonesia’s big cities, the apartment complex at Ngagel was emblematic of the 1998 economic crisis. A photo in a Tempo magazine (11 Jan. 1999) report on Indonesia’s massive public and private sector debt highlighted the association between unfinished buildings and the crisis. The photo depicted steel girders sticking out from these buildings against a background of new, unoccupied high-rise apartments. A group of Dinoyo men mused over the report as they sat in a street stall near the unfinished apartment building. Pointing towards the building, one of these men said, 118 Surabaya, 1945–2010 “Krismon”. This acronym for ‘monetary crisis’ (krisis moneter) was perhaps the most common term used by Indonesian people throughout 1998. Unfinished and unoccupied buildings signified non-performing short-term bank loans. Speculative property investments had absorbed around one quarter of these loans, which between 1994 and 1996 had doubled to East Asia’s crisis-hit countries of Indonesia, Malaysia, South Korea, Thailand and the Philippines (Lever-Tracy and Tracy, 1999: 9). Observers described this rush of speculative capital as a stampede to finance projects that had to be repaid in less than 18 months (Soesastro and Chatib Basri, 1998: 6, 37). Across Southeast Asia, the office blocks and apartment buildings that had attracted much of this capital were under-occupied by up to 25 per cent upon completion, if indeed they were completed (Far Eastern Economic Review, 12 June 1997; Bello, 1998: 14). In Jakarta things were much worse, with apartments and hotels under-occupied by 40 per cent and industrial estates by almost 70 per cent (Fischer, 2000: 228). For foreign lenders and investors, such high rates of under-occupancy were a sign of the billions of dollars in non-performing loans to Indonesia and Southeast Asia and evidence that the region’s reputation for generating the best returns on investment anywhere in the world had come to an end (Johnson, 1998: 18; Winters, 2000). The first clear sign of the crisis had come on 2 July 1997, when the Bank of Thailand floated the Thai currency after almost depleting its foreign reserves in a US$23 billion bid to maintain the dollar peg. By August, central banks across the region had floated their currencies , with Indonesia forced to float the rupiah on 14 August after spending US$1.5 billion over the previous six weeks in a failed attempt to rescue the currency from its downward slide (Soesastro and Chatib Basri, 1998: 7). A massive downturn in construction sector GDP had pushed the Indonesian economy into negative growth — minus 6.2 per cent. This turnaround in GDP growth from the 8 per cent in 1996 had not been seen in OECD countries since the Great Depression. It combined with the closure of 16 banks and a pending sense of political unrest that culminated in a huge US$24 billion reversal in capital flows — from an inflow of US$13.5 billion in 1996–97 to an outflow of US$10.4 billion in 1997–98 (Johnson, 1998: 15–6; Soesastro and Chatib Basri, 1998: 34; World Bank, 1998...

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