To the outside world, Indonesia looks like a disaster waiting to happen. Even inside the country, there are fears that the upheavals of May which led to the overthrow of President Soeharto will be nothing compared with what lies ahead if the new government of President B.J. Habibie fails to rebuild a shattered economy, distribute affordable rice to millions of people and give them their first free election in 43 years. In the first article of a five-part series on the state of Indonesia, Asia Editor David Jenkins asks if Habibie has what it takes to pull his nation back from the precipice.

The play, which was called Thuk, was performed to packed houses in Jakarta by a group from Solo, the old royal city in Central Java. It was in Javanese, not Bahasa Indonesia, and it dealt with the lives of Indonesia's long-suffering underclass, the people who often seemed to lag behind as the nation raced headlong towards "development".

The language was gutsy, earthy, angry and abusive. Audiences loved it. They loved hearing Javanese being spoken on stage. They loved the fact that the wong cilik, or "little people", had been given a voice.

They delighted in the sexual and political allusions. There were cheers when a struggling bicycle repairman said that his dream was that all the cars on the toll road would get a puncture. Members of the audience, which was drawn largely from the ranks of the middle class, were aware that most of Indonesia's toll roads were owned by President Soeharto's eldest daughter, Tutut.

They knew that no-one with a Mercedes-Benz stopped anymore to have a puncture repaired at a modest tambal ban, or roadside tyre-repair stall. That was four years ago. Today, the members of the Indonesian elite appear to be a good deal more ambivalent about the nation's large and increasingly restive underclass.

They are concerned, up to a point, about the welfare of those at the bottom of the social pyramid. But they live in growing fear of the Jacobin masses. They worry that members of the underclass may wreak a terrible vengeance should the existing social order collapse, as it already has in some places. "I foresee a great chaos," says Rosihan Anwar, a retired editor and columnist as he receives a visitor at his Dutch villa in Menteng, an elite Jakarta suburb.

"The people will no longer go against the Chinese. That is the past. They will go against their own people, the middle class, whom they regard as the haves... Here, in the Menteng area, they will burn down [the houses of the wealthy]. That is really a revolutionary situation. It could come to that."

Similar concerns are expressed by Abdurrahman Wahid, the respected moderate who heads Nahdlatul Ulama, Indonesia's largest Islamic group, with 34 million members, many of them in the densely populated villages of East and Central Java, where tensions are already spilling over into violence.

The grass, he says, is tinder dry. A single miscalculation, such as postponement of the May 1999 general elections, may trigger social revolution. "People will take things into their own hands," says Wahid, as the call to midday prayer reverberates around his compound at Ciganjur, on the southern outskirts of the capital, "and there will cease to be viable government in Jakarta.

"All institutions will lose their meaning, including the army, including the bureaucracy, including Nahdlatul Ulama. "The religious organisations are basically strong but now they lose all meaning. And the initiative will be in the hands of local people, like what happened in Bondowoso, like what happened in Lhokseumawe, like what happened in Kebumen. People now have hooliganism everywhere."

According to one of the nation's most prominent economists, Dr Sjahrir, "class conflict" may be only a matter of time. "We are," he says, "running against the clock."

Others, it must be said, are more sanguine. There is some semblance of social breakdown, they concede. But it does not follow that the lid is about to blow off. "At times it looks like the place is really going to spiral out of control," notes one source. "Then it calms down."

Five months after the fall of Soeharto, whose 32-year-old authoritarian government collapsed amid a wave of rioting, looting and arson that claimed 1,200 lives, there is mounting hardship – and tension – across Indonesia.

The situation is especially bleak in Java, the heartland of the Indonesian state and the island hardest hit by the nation's economic crisis.

Java, barely half the size of Victoria, has a population of 110 million. People are packed solid into the shanty towns of the great cities and into the thatched villages of a beautiful but desperately overpopulated island, which is studded from one end to the other with major volcanoes, many of them still active, their great cones looming over the landscape, restless and smoking. Even in the best of times, many Javanese find it difficult to make ends meet. These are anything but the best of times.

The bottom has fallen out of the Indonesian economy. Many of the nations biggest banks have gone under. Many businesses are bankrupt. In 14 months, the rupiah has lost 75 percent of its value against the US dollar. Inflation is running at 82 percent. Wages have fallen by 77 percent. Interest rates stand at 60 percent. In the nine months to September 30, the economy contracted by 14 per cent.

The food distribution system is in disarray. The price of rice has quadrupled. Many families are eating only once or twice a day. Malnutrition is having a devastating effect on the very young. More than 80 million Indonesians are now living below the poverty line, up from 22 million in 1996. The figure will reach 140 million next year, putting two out of every three people in poverty. Only 54 percent of Indonesia's children enrolled for the school year, down from 78 percent last year.

It is true that the International Monetary Fund has taken round the hat for Indonesia, garnering $US49 billion for an emergency bailout. But as IMF money has come in, Indonesian money has gone out. Wealthy Indonesians parked a staggering $US14 billion offshore in the year to March, hollowing out the economy.

No investment is coming in. Private foreign debt is more than $US80 billion. Factories and building sites stand idle. Unemployment is at record levels. This is bound to have implications for regional stability.

Indonesia's resource-rich Outer Islands may, with some exceptions, be riding out the storm. But Java hangs like a dead weight from the Indonesian balloon, tethering it to the ground.

Not surprisingly, Indonesia's economic collapse is having an impact on social order. Hardly a day goes by without reports of new disturbances, many of them violent, usually but not always on Java. Nor did it take long for the unrest, which began in the cities, to spread to the countryside.

"When the gerakan reformasi [reform movement] eased in the urban areas in June," a noted Indonesian sociologist, Professor Loekman Soetrisno, told a recent conference in Canberra, "it appeared in the rural areas." The first targets were the village heads, especially those known to have gone out of their way to collect votes for Golkar, the electoral vehicle of the Soeharto Government. The camats (sub-district heads), especially those who relied on corruption, collusion and nepotism to acquire land, also became targets.

As the cry of reformasi echoed across Java, many village chiefs were forced to step down. In one regency, no fewer than 80 villages faced a power vacuum because no-one was willing to serve as village head, once a highly coveted position, prestigious and lucrative. Then came the looting.

In recent months, mobs have attacked shops and granaries. They have raided rice fields, prawn ponds, onion patches, coffee plantations and chicken farms, in one case carrying off 15,000 chickens. They have occupied land they believe was taken illegally, including parts of the Soeharto ranch in the hills behind Bogor. In some parts of East Java, the poor have swarmed across state-owned teak plantations, felling trees at will.

In a chilling development elsewhere in the province, mysterious black-clad "ninjas" who have already killed and dismembered more than 150 sorcerers have begun targeting Muslim clerics from the Nahdlatul Ulama. Victims have often been cut into small pieces, with their body parts thrown into mosques or dangled from trees.

In the Central Java port city of Cilacap, where in 1942 the last Dutch flying boats lifted off for Broome ahead of the invading Japanese, fishermen recently set fire to ethnic Chinese shops and trawlers, accusing the owners of destroying the livelihood of traditional fishermen.

Elsewhere in the province, grave-robbers armed with knives and crowbars have broken open Chinese coffins and stolen jewellery and other valuables. In some cases, they have even stolen the coffins, which are made of valuable teak, leaving the remains scattered on the ground.

"After two months," says Loekman, "the rural reform movement mysteriously stopped and plundering began. For the urban poor and village landless, reformasi means plundering. This could destroy all that has been achieved."

There are echoes here of 1945 when Java was gripped by revolutionary violence and lawlessness in the interregnum between the collapse of Japanese power and the attempted restoration of Dutch power.

The man who finds himself at the controls as Indonesia rides out this storm is President B.J. Habibie, 62, a German-trained aeronautical engineer who likes to compare himself with an airline pilot nursing a jetliner back from a near-fatal dive.

Habibie, who came to power through a form of dynastic nomination, having been in the care and tutelage of the former head of state for the best part of 50 years, is an unlikely head of state, a diminutive, gnome-like man with a fixed grin and darting eyes. He is voluble, excitable, gregarious, impulsive, eccentric, highly educated, everything Soeharto was not. No-one doubts that Habibie is clever. But does he have the right stuff?

Is he up to the task of governing a nation of 211 million people as it struggles to contain potentially explosive social, economic, ethnic and religious tensions? Can he inspire confidence? Can he provide leadership, judgment, stability, direction? Can he animate his sometimes fractious administration?

Habibie is under pressure from modernist Muslims who want Islam to play a greater role in everyday life. He is under pressure from generals who rose to power as Soeharto princelings, obedient to the former leader's every whim, careless of constitutional and legal niceties, willing to employ violence in the pursuit of their objectives.

Some of the younger generals are prepared to admit that the army needs to clean up its act and, once calm is restored, stand back a little from the political process. Others are holdovers from the Jurassic past, discredited representatives of a discredited army, an institution now seen by many Indonesians to be red in tooth and claw.

As one diplomat puts it: "Habibie is not a powerful figure in his own administration. There is a tremendous range of views in the administration, which explains why there is so much vacillation." For the time being, Habibie is keeping the show on the road, just. But he has his work cut out. "Habibie has done better than expected," says a source in Jakarta. "But in the last few weeks there have been signs of the old Habibie we knew and loved and feared – more flip-flopping, jobs for the boys and so on."

Habibie's "first priority" is to stabilise the rupiah. Once that happens, he says, the business climate will pick up, pumping life back into a moribund economy. In recent weeks, there has been some good news on the currency front. The rupiah, which was trading at 2,500 to the US dollar in mid-1997, has clawed its way back to 7,000, having fallen to 17,000 early this year when the market learnt that Soeharto wanted Habibie as his vice-president.

Habibie's second priority is to ensure that Indonesians have enough to eat and that food is available at affordable prices. Failure on that front may prove catastrophic. For the time being, the problem is not that there is insufficient rice in Indonesia, although it may come to that; it is that rice is not always getting to the places where it is needed and is not always available at affordable prices.

As one source puts it: "It depends to some extent on the degree of efficiency, probity and lack of corruptibility of local officials... It's very much a Java problem. But if it's a Java problem, it's a big problem."

Nor is that the end of the problems confronting Habibie. He has to live up to his promise to revamp the political system and hold parliamentary elections, a task he is attempting even as he strives to hold on to the presidency for another six years.

He has to find some way to overhaul and discipline the armed forces, while ensuring that his new broom does not sweep too clean, producing an army backlash. He has to investigate – or go through the motions of investigating – the Soeharto family wealth, while ensuring that there are some rocks that are not turned over, including those of the Habibie family, which grew immensely wealthy during the Soeharto era. The revamp of the political system, now well under way, is bound to have a profound effect on Indonesia.

For more than 30 years, Soeharto kept a tight lid on the bubbling cauldron of Indonesian politics. To preserve "stability" – and his own position – he rigged elections, bought off critics, jailed opponents and manipulated party congresses. Soeharto used the army and the civilian bureaucracy to threaten and intimidate voters. He corrupted the press. He suborned the judiciary. He stacked the parliament with family members and time-servers.

Habibie has spent his first five months in office making concessions to those demanding reform, largely, it is true, because he has had no choice.

He has spoken about the importance of democracy. He has paved the way for new general elections, which are to be held in May, or possibly June. He has abandoned the rule that says there can be only three state-approved political parties – at the last count, Indonesia had more than 80 parties – and drawn up new election and political party laws.

He has ended the ban on free labour unions, released some political prisoners, dropped restrictions on media freedom and apologised for human rights abuses in the past.

He has withdrawn front-line troops from East Timor and Aceh in northern Sumatra (although there are some indications that this is a bit of a sham) and established a mechanism to investigate military abuses. He has begun, very tentatively, to look into claims that members of the Soeharto family may have had their hands in the till.

As Habibie has set out to address these problems, he has had to battle a major credibility problem. Habibie prospered mightily under Soeharto, who treated him like a prodigal son, lavishing funds on his scheme to build an Indonesian aerospace industry in Bandung. He has been accused of benefiting directly from the korupsi, kolusi and nepotisme – or NKK, as it is known for short – that was such a feature of the Soeharto presidency. He was elected vice-president in March by a People's Consultative Assembly packed with Soeharto relatives and stooges.

He is anathema to many secular nationalists, who believe that he and key members of his group, which includes at least two prominent "green" (or Islamic) generals, have pushed the Islamic barrow to advance their own interests, undermining the cause of religious tolerance, which is fundamental to national unity.

He is viewed with scepticism by many in the ethnic Chinese community, which has traditionally played a central role in business.

He is distrusted by reformers and human rights activists, who note that his cabinet includes generals implicated in bloodbaths that claimed hundreds, and in some cases thousands, of lives. As Dr Dewi Fortuna Anwar, one of Habibie's closest advisers, disarmingly observes, the new president has "very weak political legitimacy".

Those shortcomings notwithstanding, many Indonesians seem prepared to leave Habibie where he is. What the nation needs, they argue, is a transitional leader who can hold things together until the general elections. It is too difficult and too dangerous to replace him.

That argument carries weight. One problem is that it is not always easy to keep Habibie on track. "His impulsiveness is perhaps his biggest flaw," notes one observer. "He is attracted like a moth to the flame to all sorts of kooky ideas and he won't consult with advisers or disregards advisers. This makes him a very erratic head of state." A more serious problem is that Habibie has no intention of playing the role of Kerensky, not that Kerensky had any intention of playing that role, either.

Habibie likes power. He likes attention. He basks in his new role. He wants to win a five-year presidential term in his own right, however difficult that may seem. To that end, Habibie is now behaving a good deal like Soeharto before him, drawing on the power of the presidency to shape the political landscape to his own advantage.

He piously declares that he is not going to engineer his reelection, while working behind the scenes to do precisely that. A few months ago, he leaned on General Wiranto, who is defence minister and armed forces commander, to ensure that a presidential ally, Akbar Tanjung, won control of the ruling Golkar party machine. He then used two other generals, both members of his Cabinet, both discredited by their partisanship under Soeharto, to prevent Megawati Sukarnoputri, the popular Opposition leader, regaining control of her party machine.

Nor is that all. Habibie is pushing for an unrealistic seven-month delay between the election of a new parliament in May and the selection of a new president. Opponents claim that he will use this time to stitch up votes for himself, using the resources of his office to that end, in the Soeharto tradition.

That said, none of these moves may help Habibie much. He may want to stay on as president. But he has no hope of doing so unless Golkar backs him. It is far from certain that Golkar will back him. Besides, Golkar is shrinking in importance by the day. It may still have a war chest but its regional network is starting to unravel. It will be lucky to win 20 percent of the vote in May 1999, down from 74.5 percent in May 1997.

Nor can Habibie hope to keep Megawati out of the election process. That would unleash a wave of feeling that no government could control. If the elections go ahead in May – and there will be chaos if they don't – Indonesia will have a new-look parliament, one which will have strong views about who should be president and one which, unless there is too much skullduggery and vote-buying, will have the capacity to make those wishes known.

It is quite possible that a year from now, possibly less, Megawati, the daughter of Indonesia's first president, will have been sworn in as the nation's fourth president, having come to office, as did her father, on a wave of popular support, however weak her managerial skills.

It is possible that Indonesia's third president, who is virtually the adopted son of the nation's second president, and who, like his mentor, has never had his popularity tested in a free election, will have been politely shown the door. For three decades, Soeharto presided over a highly centralised authoritarian state. He held power partly because he was able to deliver the economic goods, partly because he was prepared to deal firmly, sometimes ruthlessly, with opponents. Today, the economic bubble has burst and no-one is prepared to put up with a Soeharto-style nanny state.

In five months, the Indonesian power equation has begun to change in quite significant ways. The legislative branch is gaining at the expense of the executive, although it remains true that great power is vested in the president, something that may have to be addressed at some stage by constitutional tinkering.

Civilians are gaining at the expense of the politically powerful military, which has been discredited by revelations of systematic human rights abuses, including murder, torture, theft, kidnapping and, possibly, rape.

Pribumi (indigenous) entrepreneurs are gaining at the expense of the ethnic Chinese minority, which has for so long dominated the private economy.

The Outer Islands are gaining at the expense of Java, which, as the historian Dr Onghokham likes to point out, has made such a practice of plundering the wealth of its far dominions.

Civil society is gaining at the expense of the state. Non-government organisations are playing an increasingly prominent role. The press, once kept on a tight leash, is taking its task a lot more seriously, with one exposi after another, even if some publications are noted more for their enthusiasm than for their accuracy and balance. As Soeharto sits at his home in a leafy Jakarta suburb, accompanied by a pet parrot that still greets him each day with "Good Morning Bapak [Mr] President", Indonesia is in the throes of enormous change.

For Indonesians, many of them in increasingly dire straits, the hope is that something better lies down the road. It may not.