A defiant Suharto gambles everything on an unorthodox financial plan that could cost Indonesia the IMF's support. In the process, the region's one-time leader may have become its biggest liability.
John McBeth, Jakarta – As Indonesia edges closer to the economic precipice, President Suharto seems engaged in a game of brinkmanship that is jangling nerves across the region. He has dispensed with orthodox policy management, firing the central-bank governor, Sudradjat Djiwandono, only weeks before his term was due to expire. And his decision to give the vice-presidential slot to B.J. Habibie, the controversial research and technology minister, seems set in stone.
"There's been a real change in his political behaviour," says political scientist Salim Said, struggling to explain the actions of a proud and stubborn leader desperately seeking to pluck his country from a deepening financial and social quagmire. "These are not normal times. We have to now try and understand him and why he is thinking in such a different way."
With price-related riots spreading through dozens of Javanese towns, Suharto did act predictably on one count: He replaced armed-forces commander Gen. Feisal Tanjung with a trusted army chief of staff and former presidential aide, Gen. Wiranto. Suharto also promoted four other officers in this long-awaited reshuffle, announced on February 12. Among them was his ambitious son-in-law, Lt.-Gen. Prabowo Subianto, who moves from the Special Forces to take command of the important Army Strategic Reserve, known as Kostrad.
On the economic front, Suharto's statement on February 9 that he wanted to "kill the speculators" signalled that he sees the controversial currency-board system, which would peg the rupiah to the U.S. dollar, as a weapon against the unseen enemy that he blames for Indonesia's crisis. A Western diplomat says: "His preoccupation right now is stabilizing the rupiah. That's all he can think of."
Despite the International Monetary Fund's written ultimatum that it would withdraw its $33 billion rescue package if he proceeds with the currency-board venture, Suharto may be calculating that the United States – distracted by its confrontation with Iraq – won't want to risk the possibility of an impoverished Indonesia destabilizing the rest of the region. Indeed, that prospect – and the more immediate risk of an exodus of Indonesian-Chinese refugees – is already alarming Singaporean and Malaysian officials.
U.S. Treasury officials were not told beforehand of the IMF letter, and are now worried that the fund has restricted Washington's room for manoeuvre. When President Bill Clinton called Suharto on February 14, according to government sources, the Indonesian leader complained that the IMF package had failed to stabilize the rupiah. Suharto said he would drop the currency-board plan only if the U.S. and other rich nations came up with an acceptable alternative.
Andrew MacIntyre, an Indonesia specialist at the Graduate School of International Relations and Pacific Studies at the University of California, feels the currency-board plan is an act of desperation. "Suharto is fighting for his survival and he cannot survive if the economy doesn't recover. The currency board is the last chance for him. It's quite doubtful it would work in the longer run, but in the short run it offers him a quick fix." A frustrated Suharto needs any sort of fix to demonstrate he has the power to tame the markets. His impatience also clearly stems from the fact that he wants to be able to halve the current exchange rate for the rupiah, which on February 18 was hovering near 10,000 to the dollar, before his expected re-election by the People's Consultative Assembly in March.
Suharto's removal of Bank Indonesia chief Sudradjat, meanwhile, is seen by analysts as an act of vindictiveness. The president appears to be placing more stock in a little-known American economist, Steve Hanke, the main proponent of the currency board, than in mainstream economic wisdom.
The currency-board concept is not without merit. "What Indonesia needs is a stick to keep on the straight and narrow to convincing reform and genuine transparency – and that's what the currency board requires," says Eugene Galbraith, regional head of research for ABN-Amro Hoare Govett. But many analysts, including Galbraith, question whether Indonesia would be able to withstand the shock of interest rates skyrocketing to defend the peg, which might happen once it was implemented. What Indonesia also needs, they point out, is political credibility.
If Suharto's gamble fails, Indonesia will enter unknown territory. Only new leadership would be likely to restore economic stability – but who, if anyone, will apply the pressure to make Suharto go? Some analysts believe it will take uncontrolled rioting in Jakarta itself to persuade the new military leadership, packed as it is with Suharto loyalists, to conclude that the president has now become all of the problem. "Frankly, I don't think they will intervene," says an experienced military observer. Whatever that point of intervention is, he adds, "we're still a long way from it."
In such a situation the armed forces could split, according to Australian National University analyst Harold Crouch. There is at best a "correct" relationship between Wiranto and Suharto son-in-law Prabowo, who now commands Indonesia's main two-division combat force. "Some may want to move and some may not," Crouch says. "A coup would be a very risky proposition."
In the meantime, Wiranto has been seeking to cool an orchestrated anti-Chinese campaign that has discouraged businessmen from repatriating billions of dollars parked offshore and which sent a dangerous signal to rioters who have looted Chinese-owned shops across Java, Sulawesi, Lombok and Flores.
Three days before the military reshuffle, Wiranto publicly warned against fanning anti-Chinese sentiments. "If this happens, it's wrong," Wiranto said. "We have to fight against it and neutralize it."
Wiranto's statement stood in marked contrast to the rhetoric of Feisal and the behind-the-scenes actions of Prabowo. Both have publicly attacked ethnic Chinese – particularly business-community spokesman Sofyan Wanandi and his brother Jusuf, an internationally known political scientist. Sofyan had drawn Feisal's ire – and possibly Suharto's – by dismissing the government's "Love the Rupiah" campaign as meaningless and calling instead for policies to help businessmen get back on their feet.
Western sources familiar with the Indonesian military's thinking say the message is getting across in the officer corps that "focusing the blame on the Chinese is going to be a disaster." The sources point out that if the impression gained ground in Hong Kong, Singapore and Taiwan that Indonesia was adopting an openly anti-Chinese bias, it would cut off important sources of foreign investment to help the country's eventual recovery. Dealing with ethnic disharmony is one of many challenges facing Wiranto, 50, and a new-generation military leadership divided at times by ambition and political uncertainty but unified in confronting the biggest threat to public order in 30 years. If countering social unrest remains the army's priority, one issue Wiranto is unlikely to do anything about is the Habibie vice-presidency.
Many people feel Habibie is an unwise choice. Among them are Singapore Senior Minister Lee Kuan Yew, top IMF officials, the president's own children and even his close friend Mohamad "Bob" Hasan. But Habibie increasingly seems to be the man Suharto wants.
The ruling Golkar Party, the Muslim-oriented United Development Party and the military have already lined up behind Habibie. Insiders say outgoing army chief Feisal – a close friend of the unorthodox minister – put Habibie's name forward at a meeting with Suharto before an army leadership conference on February 10-11. He later made it official in one of his last public pronouncements before handing over to Wiranto.
As long as Habibie is seen to be the palace favourite, the generals are unlikely to make their reservations about him public. "The military didn't like Vice-President Sudharmono a decade ago, but that's who they got," observes one analyst. "And they have a lot less power vis-a-vis the president now than they had then."
In the reshuffle, Wiranto's former position as army chief was taken by a former presidential bodyguard, Lt.-Gen. Subagio – another Special Forces commander like Prabowo. But while both men were sworn in almost immediately, other changes of command will not take effect until after the People's Consultative Assembly meeting in March.
This may be especially significant in the case of Lt.-Gen. Yunus Yosfiah, 54, the chief of social and political affairs and one of a handful of Habibie associates in the armed-forces hierarchy. Analysts suspect Yunus is being retained long enough to guide the vice-presidential process to its conclusion before handing over to Maj.-Gen. Bambang Yudhoyono, one of Wiranto's closest associates.
Prabowo replaces Lt.-Gen. Sugiono, another former presidential adjutant who now becomes deputy army chief. At 46, the move makes Prabowo the youngest three-star general in the modern Indonesian Army. His is the son of former presidential economic adviser Sumitro Djojohadikusumo and husband of Suharto's middle daughter, Siti Hedijanti Herijadhi. If Wiranto's relations with Prabowo are strained, in large part because the elder general has sought to rein in the younger man, analysts say, that doesn't mean the army is as divided as it may sometimes appear. "Take away Prabowo and what have you got?" says one. "He has his force of personality, his relations with the president and to some extent his connections in the Special Forces, but you won't get anyone to say he's in Prabowo's camp or part of his faction."
A Yogyakarta-born Javanese Muslim, Wiranto spent much of his early army career in North Sulawesi, before serving four years with the Malang, East Java-based 2nd Kostrad Division. He was a battalion commander in 1982-83, undertook a year-long assignment at the Army Infantry Weapons Centre under then Brig.-Gen. Feisal Tanjung and then returned to Malang to fill various staff positions.
His biggest break came in 1989, when Suharto, always on the lookout for officers with off-Java experience, personally chose him from a list of 10 promising colonels to act as his adjutant. It was a position he held until 1993, and which shot his career forward like a rocket, sending him from Jakarta-region chief of staff to army commander in only three years.
Wiranto is seen to be the consummate professional, and the maturing process that comes with rubbing shoulders with the rich and powerful means he is no political novice. "A presidential adjutant is almost a shadow minister," notes a retired general. "It's an opportunity for him to learn statecraft at the macro-national level. He sits in cabinet meetings and he carries notes from the president to his ministers. It's on-the-job training." As Indonesia lurches further into crisis, that training should be eminently useful.