Peter Hartcher – Indonesia will cut itself off from the global economy if it fails to win back the financial support of the International Monetary Fund, according to an economic adviser to the new Vice-President, Dr B.J.Habibie.
The adviser, Mr Umar Juoro, said the costs of continuing to operate in the world economy were too great for a weakened Indonesia to bear alone.
"In order for this regime to survive, they have to retreat from the open economy, if the Soeharto Government fails to persuade the IMF to resume its $US43 billion support package," he said.
And Mr Juoro said that even though the IMF was showing new flexibility in its negotiations with Indonesia, the situation was fraught because rational policy making had broken down in Jakarta.
"Indonesia's biggest problem is for the Government to come up with consistent policies, and I don't think they can. Because the influence of the First Family's interests is too great," he said in an interview with The Australian Financial Review.
"The role of Tutut [President Soeharto's eldest daughter,Mrs Siti Hardijanti Rukmana] is very important in giving guidance to the President. She seems to have more influence over economic policy than the central bank governor or the Minister for Finance.
"I think that Soeharto will make her his successor.
"This kind of cronyism gives a very negative impact to domestic and foreign investors." The President brought Tutut into the new national Cabinet as Minister for Social Affairs.
Until now, allies of Vice-President Habibie have believed that he was the anointed one. But Mr Juoro said that "when Habibie saw the announcement of the Cabinet on TV, he looked very disappointed and sad because many of the members are very close to Tutut."
Tutut's new portfolio will put her in charge of aid to the poor, giving her "a chance to win over the hearts of the common people". She has stood down from active management of her big toll-ways company but retains ownership.
Mr Juoro said he believed that President Soeharto had "no exit plan – he wants to die in office and he will make sure power shifts to a family member, most likely Tutut".
"Many of us would prefer him to step down because it would make it easier for us to make reforms. I think Indonesia will gradually withdraw from the international economy, with a lot of policy flip-flops along the way."
Mr Juoro said there were many costs for Indonesia to remain as an open economy, costs which were insupportable with a weakened rupiah and without IMF support:
"We have dwindling foreign exchange reserves – two weeks ago they were supposed to be $US16 billion, but we don't know how much of that is liquid. "It costs us $US5 billion to $US6 billion to service the government debt, and there are many imports which need to be financed. The Government has to subsidise medicines, which have a high import content, and food imports.
"There are a lot of foreign exchange expenses. This regime, economically speaking, will not be able to survive.
"It needs money also to sustain elite support, money for the military and the bureaucracy and the political elites. At the moment, there is no big crack in the elites, they stand with Soeharto.
"The biggest threat to Soeharto is how cohesively he can sustain elite support and particularly how much money the family is willing to spend. When the elites are united, social unrest can cause instability but it cannot bring down the regime.
"But if they are divided, this can be a problem. Money is very important to keep the military's support for the regime and also the bureaucracy. Tax and oil revenues are not up to expectations. They can no longer put the squeeze on the big Chinese business interests. So where will the money come from?
"The IMF money is very important to the regime."
The IMF has suspended payments to Indonesia because the Government was failing to meet the conditions agreed in January. Negotiations are continuing this week to try to find some basis for the resumption of IMF support to Indonesia.
The $US43 billion IMF package includes funds subscribed directly and indirectly by Australia and a broad coalition of other countries.
Mr Umar Juoro is senior economist with the Centre for Information and Development Studies in Jakarta, a think-tank closely associated with Dr Habibie. He is also the executive secretary of the Indonesian Institute for National Development Studies, which is associated with the Coordinating Minister for the Economy, Mr Ginandjar Kartasasmita. Mr Juoro, 38, studied economics in Germany's Kiel Institute of World Economics and in the Philippines, he took his master's degree in political economy at Boston University, and also graduated in physics from Indonesia's Bandung Institute of Technology.