APSN Banner

As Dr Strangelove rises, rupiah falls

Source
Sydney Morning Herald - January 22, 1998

Hamish Mcdonald – He is short, speaks shrilly and gesticulates wildly, has a decidedly Teutonic manner from his German education, has the ear of his president, and wants to build aircraft, rockets, ships and nuclear power plants. He is also the man who bought the East German Navy.

Not surprisingly, he has long been known as the "Dr Strangelove" of Indonesian politics, after the crazed German rocket scientist of Stanley Kubrick's eponymous film.

And his penchant for big-buck, high-technology projects has been exactly the kind of tendency the International Monetary Fund has been trying to weed out of Indonesian economic policy-making as the price of its $US38 billion ($57.6 billion) bailout package.

So when President Soeharto, 76, dropped heavy hints this week that he would make Dr B.J. Habibie his vice-president - and, on an actuarial basis, his evermore likely successor -when he runs for a seventh five-year term in March, it was taken as a slap in the face for the IMF and like-minded economic "technocrats" in his own Government.

Yesterday, the prospect of Dr Habibie, 61, the Research and Technology Minister, becoming Mr Soeharto's heir-apparent pushed the already sick rupiah down even further, from Tuesday's 10,500 to as low as 12,000 to the US dollar, about 20 per cent of what it was worth last July when the Asian crisis started.

As one senior Australian National University specialist put it, this is the kind of currency death-dive more usually seen in Burma, Vietnam and "tinpot African economies".

There are some other factors involved - the unresolved question of who repays Indonesia's $US65 billion private-sector foreign debt, the thinness of the market - but clearly Burhanuddin Jusuf Habibie is a big negative for investors. Take some of yesterday's comments:

If Dr Habibie is appointed vice-president "you can turn out the lights. You won't want to see what's going on." - Eugene Galbraith, Hong Kong-based global research director for the Dutch-owned stockbrokers ABN Amro Hoare Govett.

"[Mr Habibie] is an excellent person in all sorts of ways. He has done splendid things for Indonesia, but simply is regarded as a bit idiosyncratic and a bit old-fashioned in his commitment to economic projects of dubious economic credibility." - the former Australian foreign minister and deputy Opposition leader Mr Gareth Evans.

Whomever Mr Soeharto chooses as his running mate will be important in whether investors regain confidence in Indonesia's economy as it "could say a lot about the direction Indonesia will follow". - the IMF first deputy managing director, Mr Stanley Fischer.

So who is Dr Habibie, why has Mr Soeharto apparently chosen him, and what have so many respected economists and others got against him?

The story starts in Makassar in 1950. Colonel Soeharto, a young hotshot in the new Indonesian republic's army, is sent to quell a local rebellion. He misses li nasi gudeg, a popular dish, so takes to dropping by the Habibies, where Mrs Habibie, a Javanese, cooks this and other Javanese favourites.

Later, after Mr Habibie, Jusuf's father, dies, Soeharto helps put the youngster through school. The boy is bright and makes it to university in Germany, where he studies aeronautical engineering and joins the aircraft maker Messerschmitt-Bolkow-Blohm GmbH. On returning home in 1974, Dr Habibie joins the president's staff as a scientific adviser, and from 1978 as Research and Technology Minister.

Since then he has promoted, and won billions of dollars in State funding for, high-tech import-substitution projects which go against the ideas of Mr Soeharto's "technocrat" economic ministers, the so-called Berkeley Mafia, and the IMF that Indonesia's best strategy lies in exploiting its low-cost labour and materials.

Dr Habibie argues that Indonesia must export a lot of running shoes to earn as much as exporting one ship or aircraft.

Starting with Messerschmitt helicopters assembled in a hangar at Bandung, he expanded it into an operation employing 20,000, making small and medium-sized turboprops initially designed with the Spanish firm Casa, behind a protective tariff wall.

The problem is, it is not clear whether Dr Habibie has sold a single aircraft or ship to anyone for cash, except at exorbitant prices to captive clients like Indonesia's own armed forces and airlines or as part of official barter deals.

The cost to the transport sector and the national treasury was enormous. As one former finance minister, Dr Radius Prawiro, was heard to remark: "First Habibie comes to the government for the money to make the airplanes. Then he comes back for us to buy them."

The armed forces took another slug when Dr Habibie snapped up the entire navy of the former East Germany for what seemed a bargain $US12 million. Some of the 39 ships nearly foundered on their voyage out.

Then it was discovered it would take $US1.2 billion out of the defence budget to fix them. Dr Habibie said it was a good way to start an indigenous warship industry. Until a year or so ago he wanted to build a string of nuclear plants around densely populated, highly volcanic Java.

That the president is now floating Dr Habibie's candidacy, even before the lastest IMF medicine shows signs of working, suggests either that he has lost his grip, or that he still hopes to backtrack on his commitments once the currency pressure is off.

Analysts and business executives suggest Mr Soeharto may favour him as a subtle protest against the new IMF program. One analyst said Mr Soeharto might effectively be saying to the IMF that after having to accept the program the technocrats wanted, he would deliberately take a foe of the technocrats as vice-president.

Country