Seth Mydans, Jakarta – The International Monetary Fund got virtually everything it wanted from President Suharto. Yet on Friday, one day after he reluctantly agreed to a major restructuring of Indonesia's economy, its weakened currency resumed sliding.
The international marketplace, which has become the de facto arbiter of Indonesia's economic policies, still seemed dissatisfied. The risks and uncertainties, several financial analysts said, remained too great.
The currency ended the day at 8,450 rupiah to the dollar – 6.5 percent lower than when the economic package was announced Thursday. Earlier Friday it dipped as low as 9,000 to the dollar, close to the level of 10,000 that had set off a wave of panic buying last week.
That panic has eased, but confidence in the long-term future does not yet appear restored.
There is still no solution to the crippling private debt dragging down its economy. There are still no signals about its tenuous and potentially chaotic political future.
"I'm sure the IMF and the World Bank stood up from the table rubbing their hands with glee: This was their wish list," said Daragh Maher, an Indonesia specialist with ING Barings in Singapore. "But at the end of the day, Indonesia has a chronic foreign-debt problem, and there was nothing offered in the package that would suggest that that would be any easier to manage."
Indonesia's stock market rose by 6.9 percent Friday, but analysts said it was a poorer indicator of confidence than the currency market. It is now so thinly traded that small movements, such as apparent betting Friday on the futures of certain banks, can have a disproportionate effect.
If the rupiah's value erodes further, the country's burden of about $65 billion in dollar-denominated foreign debt would keep swelling, pushing more companies toward default and slowing the economy still more.
It's as if the formerly fast-growing nation of 200 million people, one of Southeast Asia's original "tiger economies," was sitting under "a billion pounds of weight," said Rajeev Malik, a regional economist for Jardine Fleming in Singapore. "It will certainly have a difficult time behaving like a tiger."
Worries were compounded by an impending fuel-price rise caused by Suharto's agreement to end subsidies, and by new predictions contained in the Thursday agreement of zero growth and 20 percent inflation.
Suharto received encouragement from the United States, which along with other nations had pressed him to agree to the IMF's terms.
President Clinton telephoned him a second time, and Deputy Treasury Secretary Lawrence Summers, who was in Jakarta earlier this week, said the announcement had increased Indonesia's stability.
Success in restoring the country's economic health is crucial now to Suharto's political future.
The crisis has intensified simmering dissatisfaction with his 32-year rule, and the political tension is rising in advance of his expected reanointment as president at a nominating convention in March.
Even as public demands for his resignation have increased over the past week, Suharto has made no provision for an orderly transfer of power. Even if he stays on, investors are likely to remain nervous.
At the same time, the country is bracing for social unrest as the economic slowdown, along with the newly announced austerity measures, leads to rising prices and joblessness.
Attacks on food shops that had raised prices or limited their sales were reported Friday for the second day in several towns in eastern Java.