Aid is a hand-out to tyranny

September 10, 1999

Donald Hagger condemns the blinkered theories behind western aid to Indonesia's brutal government

As Indonesia descends into chaos, severe doubts arise about the theories of development aid that have underpinned the policies and practice of official international assistance to the nation.

The official aid programme, co-ordinated through the World Bank and instrumental in the creation and continuance of former President Suharto's military dictatorship, was unconcerned with encouraging the establishment of a civil state. Now in East Timor, military-backed terror is clearly intended to intimidate other provinces that have democratic and separatist ambitions. It can only, however, threaten the integrity of the Indonesian state, as well as destroying the primary objective of stable economic development.

Aid agencies could not have been blind to the organisation of the Indonesian economy but, concerned principally with securing economic expansion and barred from intervention in political matters, they regarded its flaws as "an institutional problem". Predictably, ruling neo-classical economics urged that privatisation and the introduction of overseas capital would lead to a market economy and democracy.

The happy coincidence between the precepts of theory and the requirements of strategic diplomatic policy disguised the blinkered vision of the former - and leaves both condemned by events. Academic work, too, failed to offer an objective assessment of the realities. With political economy unfashionable, replaced by analy-

tical economics, the connections between economics and politics were, save in scorned Marxist analysis, ignored.

Indonesia is a test case now for both the theory and practice of aid. Had reality been faced, present events would at the least have been predicted and counter-measures prepared. Economic theorists can now only express surprise that political collapse could follow so hard on the heels of rapid economic expansion. In fact, nothing could have been more predictable.

Meanwhile, the momentum of aid continues unabated. The Consultative Group on Indonesia (CGI), of which Britain is a member, has just granted $5.9 billion to the Indonesian government.

During his seizure of power, Suharto presided over the massacre of at least 500,000 people; 200,000 more died in East Timor during its struggle against annexation, and many thousands in the course of Suharto's 33-year rule as secession movements arose in other parts of the nation. The death toll in Western New Guinea - Indonesia's forgotten war - is unknown.

Aid, bilateral and multilateral, poured in, attended by thousands of advisers from the World Bank, the United Nations Development Programme, the Asian Development Bank and the bilateral donors. Initially the aim was to stabilise Indonesia as a barrier against communism; later to use it as a market for the arms trade and, after the end of the cold war, as a development opportunity for western investment. Repression was equated with stability. The fact that New Order Indonesia was a centralised, unitary state rooted in corruption and poised above centrifugal, separatist forces that were held in check only by the military was ignored.

Something of this has had to be acknowledged recently. Ex-US president Jimmy Carter, now working for the UN, said of East Timor: "The Indonesian military and other government agencies are supporting, directing and arming pro-integration militias to create a climate of fear and intimidation." In this the West remains implicated because it brought about the downfall of President Sukarno and in effect replaced him with General Suharto. Indonesia today is the legacy not merely of Indonesia's founding father, Sukarno, under whom the military was constitutionally enshrined in every corner of the administration, or of Suharto, who institutionalised corruption, but of international aid policy.

With the exception of Indonesia's former colonial power, the Dutch, the West remained officially and culpably oblivious to the nature of Suharto's regime. The Dutch withdrew from the Intergovernmental Group on Indonesia - the consortium of western aid donors - after protesting at abuses of human rights. As a result, the group was re-formed as CGI, chaired by the World Bank, and continued to meet to grant annual aid injections. The only admission of the problems inherent in the New Order was the mantra of the World Bank that "institutional problems need to be addressed". Of course, the bank remained broadly content because Indonesia had never defaulted on its loan repayments.

The failure of aid policy lies in the fact that it had no political component. It was assumed that the objectives of the donors and the New Order government were generally aligned, an assumption that brings into focus the deficiencies of development studies. An examination of standard texts reveals strikingly little on corruption and dictatorship, or on the political milieu in which aid is provided. It is assumed that the political structures of developing countries are copies, albeit flawed, of western political economies, possibly because the study of political economy itself has been down-graded, even derided, by the advocates of market economics.

In universities across Britain, schools of development studies have proliferated and attracted students from developing countries. The Indonesian crisis should now force a re-evaluation of development theory, re-engaging it with the realpolitik of both aid practice and the politics of recipient regimes.

Donald Hagger is administrator of the Sterling Group of universities. From from 1980 to 1987 he was a World Bank-funded adviser to the Indonesian government.

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