Economy Poses Top Challenge for Indonesia

JAKARTA, Indonesia — Stock markets and inflation rates, not student protesters or the military, pose the most difficult test for new Indonesian President B. J. Habibie as he takes the helm of this psychically and fiscally challenged nation.

Global economic forces that sent this once dynamic economy into a tailspin forced President Suharto from office last week, and those same market pressures confront Habibie as he attempts to fashion a blueprint for democracy while wrestling his economy back from the brink of insolvency.

Unless he succeeds quickly, and in a manner acceptable to the international lenders that have kept the world’s fourth most populous nation alive through fiscal transfusions, Habibie risks becoming yet another victim of the youthful “people power” movement that toppled 76-year-old Suharto, Asia’s longest-ruling leader.

“One of the most difficult problems we have is at the macroeconomic level,” said Arifin Panigoro, a 53-year-old Indonesian businessman and reformist. “The new government does not have the confidence of the outside.”

While Indonesia’s campuses were relatively quiet Saturday, student leaders vowed to keep up the pressure on Habibie, a German-educated aerospace engineer and Suharto protege, to set a date for general elections and step down early. Under Indonesian law, his term would last until 2003.

In a surprising move, Habibie’s chief economic advisor, Ginandjar Kartasasmita, joined in the call for early elections at a news conference Saturday that followed his swearing-in ceremony. He said that the country’s economic revival depends on a quick end to the political uncertainty that accompanied last week’s unprecedented transfer of power.

“One thing is for sure: We need to have a new government with a new mandate from the people,” said Ginandjar, who retained his job as coordinating minister for the economy, finance and industry in the new government. “This means general elections as soon as possible.”

Some Indonesian economic experts fear that Habibie and his newly appointed Cabinet will be distracted by the power grabs taking place among competing factions in Indonesian society that for the last 32 years answered only to former army Gen. Suharto. Those include the country’s major political parties, religious groups, students, business leaders and the military.

“Everybody is struggling for a piece of political power,” said Alexander Irwan, a columnist for Bisnis Indonesia, a business newspaper. “Meanwhile, the economy is not getting better at all.”

Ginandjar and other members of Habibie’s new economic team attempted to dispel those fears Saturday by promising to move quickly to implement the tough reforms sought by international lenders. Those include the dismantling of powerful monopolies, an end to political favoritism and a cleanup of corruption.

But the economic chief warned that it is “not possible to improve all of these things in one or two months, or even one or two years.”

The problem is that time is running out.

If Indonesia’s government can’t get food onto store shelves and factories running soon, it risks a repeat of the violent riots that erupted this month after the government imposed massive price hikes on fuel. At least 500 people were killed, and thousands of shops, banks and factories were burned and looted.

Meanwhile, thousands of expatriates and ethnic Chinese--the latter of whom control an estimated 70% of the nation’s private wealth--fled to havens in Singapore, Hong Kong and Australia.

“The resources of this country were gambled by the rich, and it is the poor who are paying,” said Sanjay Sojwal, an Asian representative of World Vision, an international relief agency. Even before this month’s crisis, 7.5 million Indonesians faced acute food shortages.

Indonesia’s economy, just a few short years ago the darling of the developing world, has slowed to a crawl. Over the last year, the 80% slump in value of the national currency, the rupiah, has left most companies in effect bankrupt. Per capita income has fallen to $300 a year, making the country’s diverse population among the poorest in the world.

Bank credit has virtually disappeared, and exporters can’t get money to buy raw materials to keep their factories going. Inflation is hovering around 50%, and analysts expect the economy to contract by at least 10% this year.

Just a few days ago, a senior diplomat here said that the Indonesian economy was a week away from insolvency. The combined government and private debt has been estimated at $130 billion, according to one informed source.

Ginandjar insisted Saturday that his government can meet its sovereign debt obligation. He said a creditors’ meeting has been set for the first week of June to discuss renegotiation of the country’s estimated $80 billion in private debt.

But in separate comments Saturday, International Monetary Fund chief Michel Camdessus and U.S. Treasury Secretary Robert E. Rubin said that international lenders will need time to review the plans of the Indonesian government before disbursing more money. The IMF, which has agreed to provide $43 billion in support to Indonesia, has postponed a scheduled disbursement of $1 billion that was due June 4.

IMF Asia director Hubert Neiss is scheduled to visit Jakarta this week to meet members of the post-Suharto government and conduct a review.

“My view is that it needs to wait a bit,” Rubin said Saturday in Canada, where he was attending a meeting of finance ministers from 18 Asia-Pacific countries. “The key now is to have the kind of economic and political circumstances in Indonesia that will make a program effective.”

The world has a tremendous stake in restoring economic stability to this resource-rich Southeast Asian nation--home of the world’s largest Muslim population, huge oil and gas reserves, and some of the globe’s busiest shipping lanes.

Indonesia’s worried neighbors have seen their trade flows suffer because of the political instability, and Malaysia and Singapore have bolstered their border patrols to prevent a flood of economic refugees from crossing the ocean.

For Indonesia, Southeast Asia’s largest nation in terms of both size and population, political reform is going to be just as difficult as economic resuscitation. It is a process that will take months, political analysts say, because it involves building a new system, not just restructuring an old one.

“We will have to revise, and discard where necessary, laws that enabled one man to have a monopoly on power,” said Mochtar Pabotinggi, a political scientist. “To give sovereignty to the people, to achieve political rationality, we’ll need new laws on everything from the electoral process to the establishment of political parties.”

Under the present complex system, designed to keep Suharto’s Golkar party in power, the chief executive is chosen by a rubber-stamp People’s Consultative Assembly with 1,000 members, 575 of them presidential appointees. The assembly generally convenes once every five years.

Day-to-day affairs of state are the responsibility of parliament, which has 500 members: 425 elected civilians and 75 military men. The body makes up half the membership of the larger assembly. Traditionally, civil servants were told at election time that they would be dismissed if they didn’t vote for Golkar members to fill the parliament seats. Pensioners were threatened with losing their benefits.

The first order of political business for Indonesia will be to decide whether Habibie’s government is a permanent one, intended to complete Suharto’s term of office, or a transitional one, as reformists hope, that will step aside when a general election is held under revised political laws.

Ironically, reformists might have got out from under the legacy of Suharto more quickly had they accepted his terms to resign after overseeing reform and holding elections at which he said he would not be a candidate. That process was expected to take 18 months. As things now stand, they could have Habibie, Suharto’s best friend and former vice president, for five years.

But true political reform goes well beyond just revising electoral laws and touches on all aspects of life for 200 million Indonesians--including human rights and freedom of expression.

“There are still reasonable people who think reform can take place through parliament,” said Marzuke Darusman, co-chairman of the National Human Rights Commission. “But however this is worked out, you cannot have true political reform without a respect for human rights.”

Habibie’s Cabinet appeared to endorse that realization Saturday when the new justice minister, Muladi, announced that all political prisoners could soon be released. Under current laws, anyone “discrediting” the government can be jailed for seven years. It is believed that Indonesia holds more than 100 prisoners under that law.

“The government should now grant amnesty to political prisoners, abolish their sentences and rehabilitate them, because political crimes are very subjective,” Muladi said.

Except for in Thailand and the Philippines, democracy--at least as it is understood in the West--is not generally practiced in Southeast Asia. Governments tend toward the authoritarian, and societies have by and large accepted the notion that the community is more important than the individual.