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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

The enemy within

Well-connected cliques are eroding confidence in Suharto's rule


AFTER A NATION'S LEADER has pledged to close insolvent banks, dismantle monopolies and heed the advice of multilateral lenders bailing it out, what's the best way to torpedo confidence? Answer: Break the promise at the behest of family and friends. Indonesia impressed investors by calling in the International Monetary Fund and shutting down 16 troubled banks late last year. After the rupiah plummeted to its lowest level in January over a fantasy budget, Jakarta struggled to revive confidence by expanding the IMF plan, which included the dismantling of wheat, logging and clove monopolies milking the economy.

So what are investors supposed to think about the seriousness of Indonesia's economic reforms in light of recent moves by well-connected interests? The cartels condemned to the scrap heap are attempting to carry on under new guises. Take the plywood cartel headed by Mohamad "Bob" Hasan. At first, it tried to impose a $5 "fee" on every cubic foot exported by its members. There has also been talk of Apkindo trying to retain its grip on shipping.

A second cartel also tried to reassert control: BPPC, the clove monopoly run by Suharto's youngest son, Hutomo Mandala Putra. Though it is officially slated for closure, a minister has revealed a "partnership" being set up between elements in BPPC, clove-cigarette factories and cooperatives. And last week, amid a report that the IMF may withhold the second tranche of its $43-billion bailout, State Secretary Murdiono was at pains to insist that the Bulog monopoly on imported staples like wheat and sugar was ended. He also said food subsidies were for the benefit of consumers, not importers. The stubborn monopolies may be trying to emulate the reincarnation of a closed bank belonging to Suharto's second son Bambang Trihatmodjo.

Nor has it helped dispel global concerns over a privileged clique that Jakarta tried to adopt a "currency board system" to fix the rupiah rate, reportedly on the advice of some Suharto children. Having agreed to follow IMF promptings, Jakarta might have sounded out the agency about the idea first. After all, without its backing Indonesia would be hard pressed to maintain the international support needed to stabilize its currency and economy. Now that the Fund and the West have dismissed the scheme, confidence in the country has suffered another blow.

The currency board may well be a good thing for Indonesia, and President Suharto is right in exploring all kinds of ways to ease his nation's pains and revive its fortunes. But Jakarta's efforts will inspire little confidence if there is a nagging suspicion that it may not have the public's interests closest to heart. And such doubts will be hard to set aside if monopolies that for ages milked the economy continue trying to wriggle out of reforms on which Suharto has given his word.

Singapore's tough-talking senior minister, Lee Kuan Yew, has recently referred to the evils of nepotism and cronyism. Integrity and honesty, he says, are key elements in helping Asian nations find a way out of their current economic woes. Those words ring no more true than in Indonesia. There a long-serving leader's struggle to save his legacy of progress may be undercut by the very people closest to him.


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