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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

DECEMBER 10, 1999 VOL. 25 NO. 49

Where Is Wahid Going?
Indonesia is recovering slightly, but it may not have much to do with the president's policies

He must have known it couldn't last. Abdurrahman Wahid has been metaphorically bobbing and weaving through his first weeks as Indonesia's President. Consider the moves: filling his cabinet with a hodge-podge of politically motivated appointees, novices and academics. Promising Aceh a referendum. Pledging national stability. Encouraging global investors to take a chance on the new Indonesia. Assuring local interests that they won't be forgotten. He has been, as he asks to be called, just plain Gus Dur - everyman's president.

Early Days
New President Abdurrahman Wahid has not yet shown a coordinated economic agenda for Indonesia. But he may soon be forced to do so
• Challenges
What must be done to fix the economy

How international grocer Royal Ahold of the Netherlands bit the dust in Shanghai

Selling Chinese culture on the Net

Global insurance companies prepare for their passage to India

Julian Mayo, managing director of Regent Financial Services on 'business as usual' in Malaysia

The 'Economic Y2K' confronting Asia

Indonesia: His, and ASEAN's, Way
Wahid says (mostly) the right things

Daily Briefing: The World as Wahid Sees It
The new Indonesian president outlines his policies.

Indonesia: Now for the Hard Part: the Economy
President Wahid had better pay attention to economics if he wants to hold onto power

Wahid sworn in as Indonesian president
October 20, 1999

Wahid wins Indonesian presidency after turbulent election
October 20, 1999

But with a fresh scandal breaking over the $1.36 billion loan from Bank Negara Indonesia (BNI) to a subsidiary of well-connected Texmaco Group dating back to 1997, the fence-straddling days may soon end. According to testimony this week before Parliament by Laksamana Sukardi, the new minister of investment and state enterprises, the loan violated banking regulations but was pushed through by former president Suharto. Texmaco denies any irregularities in connection with the BNI loan. No Indonesian bank is permitted to lend more than 20% of its capital to a single conglomerate; the Texmaco loan by the central bank far exceeded that limitation. Wahid must decide how aggressively to pursue wrongdoing. Is this the time to take on what promises to be a divisive prosecution?

Indonesians and foreigners alike will be anxious to find out. The new President faces a daunting collection of economic and political challenges, and some will require choices that make enemies no matter what. So far, Wahid has done little to suggest he has an agenda other than survival. That could change as the Indonesian Bank Restructuring Agency (IBRA) gears up to auction collateral and packages of bad loans from banks. The President will need to balance the demands of domestic interests, who want to make sure the nation isn't selling out to offshore buyers, against foreign investors who would be happy to see disposal at almost any reasonable price. In Aceh, the President faces a hostile indigenous populace that contributed about one-sixth of the nation's nearly $12 billion in oil and gas export earnings in 1997.

Evidence of a clear economic direction, at least up to now, is scant. Some cabinet appointments on the economics side are intriguing. Laksamana is a former Citibank executive and a former director of Lippo Bank. He is an associate of vice president Megawati Sukarnoputri, as is Kwik Kian Gie, the new minister of Economics, Finance and Industry. Kwik, once Megawati's economics guru, is an outspoken critic of corruption. Finance minister Bambang Sudibyo is an ally of People's Consultative Assembly chairman Amien Rais, who helped maneuver Wahid into the presidency. Bambang Sudibyo is a respected academic but an unknown administrator.

Wahid's first overseas trip as President, to eight ASEAN nations in four days, revealed little. In Kuala Lumpur, he said upon hearing Malaysian Prime Minister Mahathir Mohamad make the case for an East Asian Monetary Fund that Indonesia favored anything that benefited the region. Vintage Wahid. This week he travels to China. The visit is key to improving Indonesia's image among Chinese throughout Asia, including Chinese-Indonesians who took what might total billions of dollars with them when they fled the riots in May last year.

The President is out to entice foreign investment from everywhere. Last week he finished a three-nation tour of the Middle East to talk about oil and religion in Kuwait, Qatar and Jordan. Indonesia is Southeast Asia's only member of the Organization of Petroleum Exporting Countries (and is home to the world's largest population of Muslims). "The Kuwait government as well as its private business circle have pledged a huge gradual investment in Indonesia," said Wahid during the trip. He returned to Jakarta just in time to meet with Japanese Prime Minister Obuchi Keizo, who said Japan will "spare no effort" to support continued reform in Indonesia. This was actually the second meeting in 10 days between the two leaders; the first was in Tokyo on Nov. 16.

Convincing overseas money men that Indonesia is becoming a fair, transparent economy will be critical to attracting foreign investment. The furor over allegations that the central bank loaned $1.36 billion to a Suharto crony doesn't help, especially on top of the Bank Bali scandal, in which funds owed to the institution ended up with a businessman linked to the ruling party. In early November, Wahid ordered the release of an independent Bank Bali investigation by PricewaterhouseCoopers, a U.S. accounting firm, in an effort to appear transparent. The move was rewarded when the International Monetary Fund resumed lending parts of the $43 billion it pledged to Indonesia two years ago. But one step forward is followed by at least one back. Protests ensued by Bank Bali employees over the management policies of London-based Standard Chartered. The foreign bank, which bought 20% of Bank Bali, was supposed to teach Indonesian institutions how to operate properly, but, as one Standard Chartered official said as employees blocked access to the headquarters, that isn't easy when you can't get to work. ABN-Amro expects foreign investors to return to the Jakarta stock exchange only slowly, but the bank sees falling interest rates encouraging domestic investors to turn from bank accounts to equities.

Once Wahid focuses on his backyard, he will find a nearly insolvent banking system. Though the overall economy shows signs of a turnaround, they are shallow. In mid-November, the government reported the economy grew 0.5% in the third quarter versus a year earlier. It was actually the second consecutive quarter of positive year-on-year growth, but the effort was not convincing. "There were some nice numbers," says Budi Hikmat, an economist with Bahana Securities in Jakarta. "But the collapse was too big. Therefore, I see zero [growth] for 1999." Nevertheless, he is upbeat: "Consumers are spending again." Adds Joshua Tanja of Paribas Asia Equity: "New growth could be spectacular."

However, before that is likely to happen, the nation's banking system must be fixed. Getting banks in the mood - and financial health - to lend again is critical to capital-starved companies. The first step is going forward with a recapitalization plan estimated to cost upwards of $70 billion, more than one-third of Indonesia's entire 1998 GDP. Bank Mandiri, the government-created bank that was supposed to be a prototype for a newly professional, profitable Indonesian institution, just reported losses of nearly $1 billion in only its first two months of operations. It opened its doors in August. Much of the failed banking system now rests in the hands of IBRA. The agency has amassed a huge inventory from the country's technically bankrupt corporations, which gave up collateral after loans went bad.

IBRA remains under the chairmanship of Glenn Yusuf, a favorite of Western financiers and one of the few holdovers from the Habibie administration. However, given that IBRA was implicated in the Bank Bali scandal and that it could wield much power in coming months as it auctions assets, many analysts doubt that Wahid will retain Yusuf. They note that Wahid recently appointed his own man, Cacuk Sudarijanto, former president of PT Telekommunikasi Indonesia, to a new position just below the chairman.

Given Wahid's political acumen, Yusuf can expect to stay in office long enough to take the heat for what promises to be a disappointing fire sale of IBRA assets. The restructuring agency announced recently that it expects to recover only 27% of the more than $100 billion in assets it controls. Then again, maybe Wahid should concentrate less on survival politics and more on simple survival - at least the economic kind. After all, the first isn't worth much without the second.

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