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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

Now The Hard Part

As Suharto points to a v.p., all eyes are on the promised IMF reforms

By Susan Berfield and
Jose Manuel Tesoro / Jakarta


Go to a list of highlights of the new economic deal

Go to a story about migrant workers being displaced across Asia

PRESIDENT SUHARTO SEEMS TO BE in fine form these days. First he announced that he will take charge of the revised IMF plan to reform the economy. Which means he is not ceding any authority, even though he is under pressure to do so. He accepted his party's nomination for a seventh term as president. Which means he is guaranteed another five years in power, though many have suggested he step down before the end of the century. Then Suharto hinted that he would like Minister of Research and Technology B.J. Habibie to be vice president. The big-spending Habibie, not a favorite of the military, was thought to be out of the running. His re-emergence as a top contender for the job means that Suharto is acting as he always has. The president is doing as he pleases, and in the process, asserting his sole authority to decide the future of the country.

That might not make everybody happy. During his 30 years as president, Suharto rarely has given in. He did not have to. Opponents (never mind ordinary Indonesians) had little power to make demands, neighbors had little incentive and world leaders little interest. The economy was growing, the markets were forgiving and political openness didn't matter much. That, of course, is no longer so. The president still seems not to believe it, though. "This is typical of a traditional Javanese king, the idea that he can do no wrong," says Arbi Sanit, a political scientist at the University of Indonesia. Suharto seems to some to be part of the problem. But he definitely sees himself as the only solution.

The government's credibility has been damaged. To restore confidence after treating an initial IMF plan lightly in his budget speech, the president agreed to a tougher Fund deal that forces him to cut off privileges to his children and cronies, end monopolies and open the economy. It includes almost every reform ever asked of Indonesia. But one crucial issue, private debt repayment, was not resolved and that worries many. Even with Suharto's personal stamp on the deal, some doubt his ability to carry out the reforms. The rupiah fell from about 8,000 to 10,000 to the dollar within days of the new agreement. Then Suharto made public his desire to stay in power and seemed to anoint a vice president. But Habibie is controversial, which does not make him the likeliest of successors in Indonesia. The next morning the rupiah sank from 10,000 to 11,800 within hours, nearly reached 12,000 and by day's end was at 11,500.

As if there isn't enough uncertainty in Indonesia these days. Habibie's selection is far from official. The ruling party listed 14 criteria for a vice president (among them an understanding of science and technology and an international reputation), which seem to describe Habibie, and not too many of the other often-mentioned candidates. Most expected Suharto to have hinted at a vice president who might become president as well. If Suharto, 76, departs office unexpectedly, his successor will have to be acceptable to the military, Muslims of all kinds, the business community, maybe even the IMF. Habibie, while a fascinating character, does not match that description.

Habibie, a 61-year-old German-trained aeronautical engineer, is one of Suharto's closest confidantes. When Suharto was a junior military officer in Sulawesi in the late 1940s, he befriended Habibie's family. When Habibie's father died, Suharto performed the ritual closing of the dead man's eyes. Since then Suharto has treated Habibie more like a son than an ally. It was Habibie (with some of Suharto's children) who accompanied the president to Germany for a very public medical check-up in 1996.

Habibie has served as research and technology minister since 1978. He has earned a reputation for tirelessly promoting state investment in sophisticated industries. It is a strategy that appeals to Suharto, worries the business community and annoys the technocrats. Habibie wanted Indonesia to leapfrog into the 21st century. But critics say he wasted billions of dollars on prestige projects with uncertain commercial merit.

The best known of these is his $2 billion plan to build a national airplane. The IMF package cuts state backing for the factory, but Habibie has said production will continue. That does little to encourage those skeptical of his ability to lead the country out of its economic troubles. "It is a public secret that Habibie is a big spender when it comes to technology," says a prominent banker in Jakarta. "We cannot afford that." And it is no secret that many ridicule Habibie for his misguided economic views, especially the idea that interest rates should be lowered in times of high inflation.

Some senior military officers still dislike Habibie (a civilian) because a few years back he used his clout with Suharto to influence what arms were purchased. That impolitic move may have cost him the vice presidency in 1993. But today's military leaders are very loyal to Suharto and will most likely accept his decision to nominate Habibie.

So Habibie could become vice president. But is he Suharto's chosen successor? Indonesia's biggest political question still has not been answered clearly. The problem is not just the prospect of Habibie as vice president. It is the prospect of Suharto staying in power without a visible succession strategy.

Many doubt that Suharto will really implement the agreed-to reforms at the expense of his family's and friends' empires and an entrenched bureaucracy. Suharto has promised to eliminate tax and credit privileges for his son's much-criticized National Car Project. Hutomo Mandala Putra, better known as Tommy Suharto, surprised people by holding a press conference after the new IMF deal was announced. He arrived in a blue Rolls Royce, promised to continue manufacturing the car with private funds and said: "This is no setback for us, we are not in it just for the money."

Suharto is supposed to abolish the controversial and costly clove monopoly, also headed by Tommy Suharto, and "all formal and informal restrictive marketing arrangements for cement, paper and plywood." This would hurt old friends such as Mohammed "Bob" Hasan directly. Hasan heads the Indonesian Plywood Association, which sets prices and quantities for plywood exports (Indonesia is one of the world's major suppliers). As a result of the economic troubles, Hasan's company has already had to lay off 2,500 of its 14,000 workers.

If the reforms are put into place, the Suharto elite will know it. But the real pain will be borne by those least able to insulate themselves. Subsidies of fuel and basic goods are supposed to be abolished; unemployment will increase as companies come to terms with a no-growth economy. "The biggest challenge in the first package was taking on special interests," World Bank country director Dennis de Tray told Asiaweek. "This one takes everything head on." And, of course, the wrenching economic adjustments will put Indonesia in a vulnerable position.

The threat of social unrest is very real. Already there have been at least three violent incidents in East Java sparked by higher prices for essential goods. In one town, a mob looted stores and threw the goods onto the street before being dispersed by police. Elsewhere, a crowd forced a rice-mill owner to sell them rice at a below-market price; another burned down a three-story supermarket. In some areas Chinese merchants, usually the first targets of such rage, are closing their shops for now.

There are worries about the repercussions of implementing the reform package. There are also worries about what is missing from the IMF program. Namely, a plan to cope with private debt repayment and strengthen the country's fragile banking system. Indonesian companies owe about $65 billion, half of which could be short-term debt, to foreign creditors. Many Indonesian companies cannot afford to repay their loans with the rupiah as weak as it is. A top credit rating agency, Standard and Poor's, warned Jan. 20 that local banks were facing a $15 billion credit crunch. And it put what may become the country's largest private bank, Bank International Indonesia, which just announced a major merger, on credit watch.

The economic turmoil could one day unhinge the cozy political status quo. Those who benefited from Suharto's New Order had also helped maintain it. Now, economic power is more limited; the gyrations and demands of the market have seen to that. So political power appears less absolute. Whether or not Suharto's opponents will be able to gather any strength as a result is difficult to predict. Especially since Abdurrahman Wahid, influential leader of the 30-million-strong Muslim group, Nahdlatul Ulama, and leading critic, is incapacitated. Wahid underwent a two-and-a-half-hour operation on Jan. 20 to remove a blood clot in his brain. Afterward he remained unconscious and doctors called his condition critical.

It seems improbable that such sweeping changes in the economic system would not be somehow reflected in the political system. But in Indonesia, says political scientist Sanit, "you don't see economic reform affecting political reform" as in Thailand or South Korea. "The relationship is cut." Political reform, of the kind that would open up government to greater popular participation, may be too much to hope for while Suharto is still in power. But perhaps too much has happened in the past month for politics to go on as usual. No matter how much those at the top hope it can.


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