Islamic Resurgence and Social Violence during the Indonesian Financial Crisis

Abstract

One of the most influential views of our time attributes a large part of the failure of development in the post-war period to group conflicts. Recent research in development economics has identified a large collection of policy innovations that would help the poor. But these policies often do not get adopted because of conflicts between groups. Researchers have traditionally focused on the number of groups that are in conflict with each other (Alesina, Baqir, and Easterly 1999, Miguel and Gugerty 2002, and Easterly and Levine 1997). This paper focuses on the intensity with which people identify with their groups. Violence is a negative externality with enormous social costs (e.g. Abadie and Gardeazabal (2003) and Alesina, et.al (1999)), so to the extent group identity and social violence (physical acts of destruction, killing, looting, attacks, burning, clashes, taking hostages, etc., by one group against another) are related, policies taking into account intensity of group identity need to be considered. This paper examines group identity and group conflict in the specific context of Islamic resurgence during the Indonesian Financial crisis. Indonesia experienced a dramatic financial crisis between 1997 and 1998. The exchange rate fell dramatically from 2400 Rupiah to the US dollar to 16000 Rupiah to the US dollar, while the CPI index for food increased from 100 to 261. In one year, asset values dropped by 91%. In contrast, it took three years for asset values to drop 87% during the US Great Depression (Friend 2003). Millions of people lost jobs or shifted to the informal sector (Irawan, et. al., 2000). The crisis reached a peak in early 1998 and led to riots and lootings in every province but one. Between 1990 and 2001, social violence led to more than 6,208 deaths in Indonesia, increasing sharply after the financial crisis of 1997 (Tadjoeddin 2002).