Jay Solomon &150; The playful smile on President Suharto's face as he gave the new "national motorcycle" a spin around his palace late last month could give the impression that all is well in Indonesia.

But it isn't. Massive forest fires are choking the archipelago, drought is worsening, the economy is mired in the Southeast Asian financial quagmire, and the rupiah has depreciated 27% since mid July, reaching a record low of 3,355 to the U.S. dollar on October 1. Downward pressure on the currency continues, multiplying Indonesia's debt-servicing costs and ratcheting up inflation. The drought is likely to force Indonesia to import rice and other commodities, straining the nation's balance of payments.

Financial analysts still marvel at how quickly sentiment has shifted against Indonesia. A stock market index fluttering at the 700 level in early August is now struggling to stay above 500. GDP growth that was targeted by the government at 7.8 % for 1997 and 8.1 % for 1998 is now seen slipping as low as 5.5% and 5% respectively by SocGen-Crosby Securities. Inflation, which hovered at a benign 5% for the first half of 1997, is expected to drift back towards double digits next year.

While the April-June current-account deficit was down to $1.7 billion from $2.6 billion for the same quarter last year, it is expected to grow considerably with the rupiah's slide. Economists who earlier projected the deficit at 4% of GDP now put their estimate at 5%. "Dramatic changes of sentiment may be commonplace in financial markets," says a recent Peregrine Securities report. "But there have been few examples as extreme as that witnessed in Indonesia."

How Indonesia comes out of the crisis rests essentially on Suharto's response. Initial steps have been encouraging. Rather than blaming foreign speculators for his country's predicament, Suharto seems to realize that at least some substantive reform is the answer. In mid-September, the government scrapped the 49% foreign ownership limit on Indonesian stocks, leading to a 11% surge in the Jakarta Stock Exchange index. Key import tariffs have been reduced to boost the competitiveness of Indonesian exports, which in June totalled $4.4 billion, a 6% year-on-year increase. And in a bid to slow down imports, the Finance Ministry delayed a number of capital-intensive projects, many that involve companies controlled by Suharto's children and friends.

But while these moves have been well received, economists say much more is needed. Most pressing is a clean-up plan for the wounded finance sector. Cash-flow problems at Indonesian companies savaged by debt-servicing costs (total private debt in 1996 reached $55 billion) are expected to seriously damage the asset quality of local banks already suffering from tight liquidity.

Economists say they also hope for more serious structural reform. Weeks after the rupiah's float, the government said it might deregulate Bulog, the agency that controls the supply of rice, soyabeans and sugar. Other measures that would boost sentiment: an increase in fuel oil prices, liberalization of the port system and the cancellation of such first-family projects as Tommy Suharto's "Timor" car venture.

But there is growing fear that structural reform in Indonesia has run its course. With Suharto-linked companies having a major stake in virtually every sector, it's hard to see what more the technocrats can tackle.