Louise Williams, Jakarta – Indonesia's President Suharto today sacrificed the business privileges of his children and cronies in a sweeping economic reform agreement with the International Monetary Fund.
He also slashed subsidies in a move that will push up prices for hard-pressed ordinary Indonesians and cut living standards for the tens of millions who live just above the poverty line.
The move to resuscitate the Indonesian economy came after last week's plunge in Indonesia's currency and financial crises that have swept through Asia.
The reforms are expected to contain inflation to 20 per cent in the coming year, with zero growth in the economy. Indonesia has enjoyed decades of single-digit inflation and average seven per cent growth.
The Australian embassy in Jakarta today faxed a warning of possible civil unrest to Australian citizens, schools and companies as Indonesia's armed forces braced for the impact of the announcements.
No demonstrations had been reported by mid-afternoon but an internal memo from one multinational company said the Jakarta Army Command had stepped up security.
The IMF agreement, which follows the failed reform package of last November, includes an immediate end to the exclusive tax and tariff concessions for the "national car" as well as the clove monopoly - both controlled by the President's son, Hutomo Mandela Putra.
Also abolished is the wheat flour monopoly, which will affect the holdings of President Suharto's daughter, Siti "Tutut" Haryanti Rukmana, and subsidies for the expensive "national jet" project, controlled by a close ally, the Technology Minister, Dr Jusuf Habibie.
The package includes price increases in fuel and electricity, which will have an inflationary impact at a time when Indonesians are already burdened by unemployment and a real drop in their standard of living. The agreement suggests that President Suharto, who has faced unprecedented calls for his resignation during the economic chaos of the past few weeks, is gambling his own political survival on the dismantling of the crony business system built during more than 30 years in power.
The Australian Prime Minister, Mr John Howard, last night welcomed the agreement.
"By signing the letter of intent with IMF managing director Mr Camdessus, President Suharto has demonstrated his personal commitment to this economic program," Mr Howard said.
Mr Howard earlier played down the impact of Indonesia's problems on Australia.
"Indonesia, despite her great political importance to Australia, is nowhere near as important a trading partner as, for example, Japan or South Korea," he said.
Last year's IMF agreement, linked to a $US38 billion bail-out fund, did not stop the slide in the rupiah and the sharemarket, partly because international investors did not believe President Suharto had the political will to implement reforms that would erode the business privileges of his family and friends.