Penny Crisp and Jose Manuel Tesoro, Jakarta – It was tough enough to bring down Suharto and sustained enough to help fell his successor. Now the issue of Indonesia's economy looms large again – as possibly the biggest threat to the survival of Abdurrahman Wahid. On the surface the figures look good, and it could be surmised that Indonesia is indeed back from the brink and heading for recovery. But the surface is deceptively brittle. And, as previous presidents belatedly discovered to their cost, the economy is key to the country's stability.

In fairness, Wahid did inherit a financial basket case. The Crisis left Indonesia's state finances in such a parlous state that the government is now heavily exposed to future risks. Just servicing the ballooning debt in the past few years has taken up most ministerial energies and funds. Foreign investment, meanwhile, continues to plunge. So one false step, or even a minor wobble in the global economy, and Indonesia plummets back into a financial black hole – and a probable repeat of the bloody 1998 riots that so nearly tore the country apart. Yet if this has occurred to Wahid, he has given little sign. Nor has he shown any inclination to properly organize his economic troops, or to deal with the fact that the buck stops with the chief executive. In essence, Wahid has mostly spent what the country doesn't have to ensure some civil stability, and gone no further. "He is not interested in the economy," says Jusuf Wanandi of Indonesia's Center for Strategic and International Studies. "And his cabinet is very weak in the economy as well." But back to the surface, where the economic nuts and bolts appear much healthier. Indonesia's first-quarter growth this year was 3.21%, well below market expectations of 4.2%-6.5%. But that figure was affected by a weak agricultural sector; other sectors grew by 6%. The rupiah, at 8,685 to the dollar, is 20% lower than a year ago. Yet rising US interest rates and a still-strong dollar must be factored into that equation. Since January, the stock index has lost a third of its value – though Manila and Bangkok are down almost as much. Foreign investment remains a black spot, with approvals for just $1.9 billion by the end of April (last year the average per quarter was $3.9 billion).

But inflation is subdued, with the International Monetary Fund estimating it will finish below this year's 5%-6% target. Car sales are up and there is also visible evidence of renewed construction. In other words, Indonesia is experiencing a comeback, largely led by consumer spending. Says Raden Pardede, research officer at Danareksa Research in Jakarta: "We are in the recovery process."

While this process probably will sustain Indonesia over this year, the future is another matter. Wahid's apparent ability to manage government finances and anticipate threats is more pertinent. Largely as a result of the government assuming banks' non-performing loans and recapitalizing them, total government debt has swelled from 23% of GDP before the Crisis to 83% today, or about $134 billion. Almost three-quarters of this new debt comes from the $72 billion in bonds issued in 1999 to recap the banks – and to reimburse the central bank for about $19 billion in liquidity credits issued in late 1997 and 1998 to prop up the system. In the last financial year debt service ate up a third of tax revenues, with that proportion expected to rise to more than 40% for the next several years.

Of course, the more money pledged to debt, the less available in other areas. Since the 1997-98 fiscal year, government spending on health has shrunk by 20%, and on education by about 40%. "That's what government debt does," says John Dodsworth, the IMF's senior representative in Indonesia. "It spreads the payments into the next generation." According to the World Bank, the assumption of so much debt has grievously exposed the government. Under a blanket guarantee scheme in place since the Crisis, for example, the government is responsible for all domestic bank deposits and liabilities. All this, and now even central bank governor Syahril Sabirin in detention.

At the end of this month the government is supposed to finish recapping most of the banks, including the big state institutions. A senior finance ministry official recently announced that another $12.2 billion in recap bonds will be issued, bringing the domestic total to a huge $75.8 billion. But the process might really just be beginning – not all the non-performing loans have gone to the Indonesian Bank Restructuring Agency (IBRA). Add to this World Bank estimates that every one-point increase in local interest rates means an extra $460 million in domestic debt payments. And still unquantified is the impact of fiscal decentralization on central government revenues and spending obligations.

All this paints a disquieting picture. Indonesia already has received generous terms on the rescheduling of its existing sovereign foreign debt. In April the government and the Paris Club of 19 sovereign creditors agreed to reschedule payments of $5.8 billion in foreign debt to between 11 and 20 years. Similar concessionary terms are expected from the London Club of private creditors for about $340 million in debt that falls due before March 2002. The World Bank and Asian Development Bank have already lent what they can, as has the IMF.

Standard & Poor's has put Indonesia's foreign-currency-debt sovereign rating at "selective default," consigning it to the same category as Russia.

So what has been achieved? In a nutshell, Wahid has delayed a fuel price increase until October (eliminating that subsidy would have saved $28.9 million a month) and given civil servants a pay increase. IBRA met its target last financial year of raising $1.98 billion – but insiders say the agency has had to concentrate on settling deals with debtors quickly. Wahid himself has directly intervened in several high-profile cases, including Texmaco and Marubeni, neither of which have earned him or IBRA any plaudits. And darker problems await. Last year IBRA estimated the book value of the debtors' assets at $61.6 billion. But the agency believes that less than 40% of that, or about $24 billion, is recoverable.

While the government cannot do much to solve private corporate debt, a boost to market confidence is sorely needed. If he has succeeded in little else in economic terms, surely the president can try to project an image of sound, coordinated management. This means not hiring and firing economic ministers at will. It also means not benignly ignoring, or contributing to, the flow of conflicting signals – caused in part by debt responsibility being divided among various offices in the ministry of finance and Bank Indonesia. Indeed, such divisions suggest that the government may not have a complete picture of its own finances. This poses the question: Could Indonesia now have a cash-strapped government with no clear idea of what it earns or what it needs to spend?

The argument can be made that Wahid's economic decisions have been politically legitimate. Higher civil service salaries reduce corruption. Steady fuel prices might discourage social instability. Quick private debt resolution is better than none at all. And Wahid is still trying to find the economic team he wants.

But while the myriad economic challenges remain unmet in a coordinated fashion, a crisis that reignites social turmoil could easily be triggered by outside factors. Or just as easily, it could be sparked by a dose of laissez-faire incompetence from within.