Indonesia, once among the developing world's leading boom economies, is being forced to reassess its ambitious development programs as government planners grapple with hard economic choices posed by the Western recession and world oil glut.
A steep slide in Indonesia's economic indicators in recent months has shown that the oil-producing country is not immune to the recession and sharpened a debate over whether to slow down or press ahead with multibillion-dollar development projects. The debate has extended to the World Bank and International Monetary Fund, which have given the Indonesian government conflicting advice.
With the outlook continuing to dim, the consensus appears to be tilting to the IMF's view that development plans must be scaled down to cope with a mounting budget deficit. Yet some optimists in the government persist in promoting costly projects, and it remains uncertain what tack President Suharto will take when he announces a new budget in January.
The dilemma is acute for Suharto, who has staked much of his prestige on economic growth during his 16 years in power.
Another factor that makes the decision to cut back development spending that much tougher, according to Indonesian and foreign economists, is the corruption that pervades the bureaucracy and the military leadership.
Despite the corruption--"leakage," officials here call it--bankers and economists consider the Indonesian economy generally well managed and believe the country is relatively well-equipped to deal with the recession. They express confidence that Indonesia can steer well clear of "the Mexico trap" of falling heavily into debt to pay for development programs that can no longer be covered by oil income.
One major problem is that because so many high officials and influential figures, including relatives and associates of the president, have a personal financial stake in the big projects, it will be difficult to cut them back, the sources say.
One well-informed economist said that many of the high officials receiving "commissions" have close links with Western suppliers, who are eager to push their capital goods because of hard times at home.
"It's unfortunate that because the personal finances of these officials are at stake, they're unlikely to cut back on some uneconomic projects," the economist said.
Despite the impending budget deficit, some government agencies have been pushing ahead rapidly with big new contracts. The latest contract to be signed is for a $1 billion oil refinery that some government planners have argued is not needed. It was awarded to a Japanese company represented by the president's son, Bambang Suharto, and a businessman close to the Suharto family.
The prospect of an oil price plunge, forecast by some economists, terrifies Indonesian economic planners, who count on petroleum exports for 70 percent of government revenue.
Indonesia already has been losing revenue at an annual rate of $3 billion because of lower oil production than projected. Original spending plans for the 1982-83 fiscal year ending next March 31 were based on output of 1.64 million barrels a day, but production has been running at 1.27 million barrels a day.
Under a plan by the Organization of Petroleum Exporting Countries to combat the oil glut, Indonesia is allowed to produce 1.3 million barrels a day. But while Indonesia has been obeying the guidelines, other OPEC members--notably Libya, Nigeria, Iran and Venezuela -- have been exceeding their quotas and discounting their prices, according to oil experts here.
In response to heavy pressure from some of its customers, especially the Japanese, Indonesia last week cut its crude prices by 47 to $1.90 a barrel. The cuts priced the country's range of crudes from $32 To $36.50 a barrel, but still left the benchmark crude above the OPEC minimum of $34 a barrel.
While relatively small, the cuts seemed to contradict the assessments of some Indonesian and Western oil executives that oil demand and prices would firm up in the next few months.
Indonesia's oil squeeze has been exacerbated by domestic consumption that has been rising at a rate of about 12 percent a year for the last five years. With lower output this year, only about 800,000 barrels a day have been available for export compared to 1.1 million barrels a year ago.
In addition to oil, exports of rubber, tin, timber and coffee have fallen off sharply, further eroding foreign exchange earnings.
According to an economic trends report issued recently by the U.S. Embassy here, the country has gone from a current account surplus of nearly $500 million to a deficit of at least $7 billion in two years. Other economists say the deficit for the current fiscal year could reach $8 billion.
Similarly, real growth in the gross domestic product has slid from 9.9 percent in 1980 to a projected 4 percent this year, according to the report. But economists concede privately that even 4 percent is optimistic and that growth may not reach 2 percent.
Indonesia's official foreign debt is put at about $17.5 billion. Private debt adds another $5 billion to $6 billion, economists say.
Official foreign exchange reserves have dwindled by about $2 billion since the beginning of the year to $4.3 billion now, according to government figures released last week.
On the bright side, economists say, the debt is still easily manageable, with a large portion of it consisting of longterm loans from international agencies or governments at relatively low interest rates. Inflation is less than 10 percent, compared to more than 600 percent when Suharto came power in 1966. The government has shown in the past, by drastically slashing fuel subsidies, that it will make difficult decisions when necessary.
"There's just no comparison with Mexico," another oil-producing country that has run up a foreign debt of about $80 billion, three-quarters of it owed to commercial banks at high interest rates, a Western economist said.
"Indonesia has very considerable financial resources to meet the present problems," said one of the more optimistic foreign officials monitoring the economy here. "The question is how long could it allow a deficit of this magnitude $7 billion to continue." He added that "everybody now recognizes that Indonesia has to engage in a major adjustment in its economy."
"I don't think the president is apprised of how serious the situation is," another economist said. "You can't continue to boost the budget as if nothing has happened."
In his latest statement on the economy, Suharto told parliament last month that Indonesia would speed up its ambitious development program rather than retrench in the face of the world recession.
"We do not need to panic in facing these conditions," he said. "Instead, we must make our national economy grow and spur on our development even faster yet."
Suharto apparently was relying on a rosy report presented to his government by the World Bank in May advocating continued high development spending despite the plunge in oil revenues.
"The risks associated with cutting back development programs in the face of the sharp and unexpected fall in revenues are greater than the risks associated with maintaining a rapidly expanding development program," the World Bank report said. The report called for increased foreign borrowing and forecast real gross domestic product growth this year of 7.5 percent.
The IMF is known to have disputed the World Bank figures and counseled scaling back expenditures. As the economy has continued to slide, this view has won converts.
Last week the state minister for administrative reform, Johannes Sumarlin, told parliament that development spending in the 1983-84 budget would have to be cut and some major projects shelved.