John McBeth, Jakarta – Supremely accomplished in the art of political survival, President Suharto had little trouble stifling opposition at home as long as the economy – flawed as it may have been by nepotism and corruption – stayed on track. But he cannot control market forces. With Indonesia now drifting towards a crippling, years-long recession, his political future is in doubt. As the rupiah crumbles and the Indonesian corporate landscape lies in ruins, the end of one of the world's most enduring regimes is in sight.
"It's the beginning of the end," says a well-known Indonesian political scientist, who did not wish to be named. "The president doesn't know what to do, and his ministers don't know what to do either."
Yet even as world leaders line up with advice, urging Suharto to adhere to the conditions of a $33 billion rescue from the International Monetary Fund, outside investors and analysts say that nothing short of a leadership change will bring Indonesia out of its crisis. "Politics is on everyone's tongue," says Credit Lyonnais chief economist Jim Walker. "The succession has been a problem all along, but when investors ask questions about it now, they're really listening to the answer."
Perhaps the strongest suggestion that change is really under way – even if it won't happen overnight – is that many prominent Indonesians are also asking the same question. Opposition leader Megawati, daughter of the country's first president, Sukarno, is one of those who have openly called for the 76-year-old Suharto to step down. "I want to remind people that while Bung Karno was still president, it was widely believed he was indispensable and irreplaceable," she told cheering supporters at her south-Jakarta residence. "But history has shown that was not the case."
Similar calls have come from more conservative quarters, such as former Mines and Energy Minister Mohammad Sadli and retired Lt.- Gen. Bambang Triantoro, head of an organization which groups former military, political and religious leaders. Former presidential adviser Sumitro Djojohadikusumo, father of Special Forces chief and Suharto son-in-law Maj.-Gen. Prabowo Subianto, called the crisis an "institutional disease." He added: "If we were just talking about the economy, then an aspirin is enough. An institutional disease needs antibiotics."
Yet in the absence of any political force that could galvanize popular sentiment, analysts believe that if and when Suharto does go, it will be on his own terms. Given the fact that key figures such as the army commander, Gen. Wiranto, and the chief of the Army Strategic Reserve, Lt.-Gen. Sugiono, are personally loyal to the president, it would take another sudden deterioration in Suharto's health or a wild slide into bloody riots and disorder to persuade the military to intervene in a more decisive manner.
Still, there are signs that recent events have advanced the succession agenda. One retired general with close links to the power centre claims it is "confirmed information" that the president and his family have decided it's now time for him to step down. But the same source insists there is "strong pressure" from the armed forces for Suharto to stay put until there is an "obvious candidate" to step into his shoes.
"We don't expect President Suharto to simply withdraw from the presidency because – due to our vague mechanism for leadership selection – we haven't got a strong candidate to replace him," the retired general points out. "If Suharto retreated from the candidacy, what we might see is chaos, because there'd be a violent political struggle. It wouldn't be as bad as it was in the mid-1960s, but it would be bad."
For this reason, the general expects a scenario in which Suharto is re-elected by the People's Consultative Assembly on March 10 but relinquishes his post in mid-term. That could possibly be as early as the ruling Golkar Party congress next August, when a new chairman has to be elected. (Suharto's eldest daughter, Siti Hardijanti Rukmana, or Tutut, is a prime candidate.) This would also allow time for the incoming vice-president to develop confidence in his role as Suharto's apparent successor.
But to many Indonesians, all this sounds too much like ancient history, with Suharto maintaining a stoic silence and Golkar nominating him for yet another term on the grounds there is no one else for the job. Haemorrhaging under mountains of U.S.- dollar debt and pressed to repatriate overseas funds, even the president's own corporate associates are growing impatient.
"The problem is he doesn't seem to listen to anyone any more," one businessman complained. "A feeling of helplessness prevails. You can't do anything any more. Some mid-level businessmen with a few million dollars have left the country because they think social unrest is unavoidable."
The first signs of that unrest came on January 8, when the dollar breached the 10,000-rupiah mark, triggering panic buying and a wave of coup and riot rumours. Officials fear that with the number of new unemployed already rising above 6 million, the real trouble could come at the end of the Muslim holy month in late January. That's when some firms will find themselves unable to pay bonuses, as required by law, and militant industrial workers face the prospect of wholesale lay-offs.
Worried about the ramifications of a political earthquake in Indonesia, world leaders have put pressure on Suharto to adhere to the IMF's austerity programme. U.S. President Bill Clinton spent half an hour on the phone with Suharto. Later, Singaporean Prime Minister Goh Chok Tong paid a one-day visit to Jakarta to talk to Asia's elder statesman.
Sources close to Indonesia's negotiations with the IMF say that while Jakarta has finally met seven of the conditions agreed on last October, differences remain over management of the money supply. The sources say the government violated an understanding on that point by injecting liquidity into the system – underlining a disagreement between the IMF and the Indonesian leadership over whether to allow more companies and banks to go to the wall.
As much as 80% of corporate Indonesia is technically bankrupt, if judged under international accounting principles, and it takes barely $1 million in foreign-currency trading to give the rupiah a 5% shunt that adds to companies' debt burdens. Yet UBS senior economist Christa Marti points out there's still no strategy in place to deal with the most troubling aspect of the crisis: the estimated $65 billion in private-sector debt. "I think it can only be dealt with by sky-high interest rates," she says. "It's become critical, and I simply don't see a way out apart from nationalizing some of the debt."
Asked whether he thinks Suharto is now ready to bite the bullet and implement the IMF programme, a senior Western diplomat says: "He's capable of doing that." The problem is, the economy may have spun beyond his reach. Indeed, the crisis has gone beyond delaying megaprojects or dismantling monopolies. Adds an Indonesian participant involved in the recent IMF negotiations: "I feel sure the message has finally got through, but more reforms are not the answer. It's too late in the day."
Critics blame the now-desperate situation on a two-month period at the end of last year when the government did nothing to respond to the crisis. Worse, the leadership was seen to be thumbing its nose at the World Bank and IMF by approving the hugely controversial Tanjung Jati C power station, in which Tutut has an interest.
The final straw was the 1997-98 budget, based on what analysts describe as "laughable" assumptions. These are an exchange rate of 4,000 rupiah to the dollar (the currency was already at 7,500 when the budget was issued), a 4% growth rate (analysts predict a 3%-5% contraction) and a 9% inflation rate (Pacific Asset Management strategist David Carbon, a veteran of the Mexican crisis, says inflation could average 55% over the next two years). As the rupiah went into a free fall, panicky housewives and office workers stormed supermarkets and discount stores, convinced price hikes and street violence were on the way. Jonathan Harris, head of research for HSBC Securities, says he watched two businessmen in suits and ties trading punches over a container of cooking oil in an upmarket bulk-purchase store.
"We are in a dark period because anything can happen," says Akmal, a small-scale businessman. "We've lost confidence in the government. They have kept assuring us the currency crisis is under control and that food stocks will be enough, but why have prices gone up and why have stocks of rice, cooking oil and sugar disappeared?" Notes Aling, an accountant: "If people trusted the government they wouldn't be panicking like this."
Until the rupiah hit 10,000 to the dollar, a strange mood of self-denial had permeated Indonesian society, with the government insulating much of populous rural Java from the currency's wild ride by holding down rice and transport costs. Suharto's main concern may be to ward off social unrest, at least through the critical Muslim holiday period and the March election. But it will be increasingly tricky to do so when the IMF is demanding actions to match what up to now have been empty words.
The officials close to the negotiations say the IMF's demands for a 1% budget surplus can still be achieved by removing petroleum subsidies. The 1997-98 allocations currently allow for subsidies worth 10 trillion rupiah, but that is only a third of what will be required for the year, and Suharto made it clear in his budget speech that their removal is "unavoidable." Most analysts feel that will happen in April, with all the attendant inflationary pressures.
Even as IMF chief Michel Camdessus is laying down the law in terms of bank restructuring and other reforms, Western diplomats warn that the political reality of a nationalistic backlash against foreign intervention – and resistance from vested interests – calls for extreme delicacy in dealing with Suharto.
"The system operates in terms of networks of influence, and it's crazy to ask people to commit suicide," says one diplomat. "You just have to whittle away at it. Suharto is going to pull in benefits and give up monopolies here and there." Suharto's children, whose business interests have so far been protected, "have to be ready to take hits," says the diplomat.
An autocratic leader accustomed to getting his own way, Suharto must now be surveying the wreckage of his considerable achievements: Annual per-capita income now down from $1,200 to $300; stockmarket capitalization down from $118 billion to $17 billion; only 22 of Indonesia's 286 publicly listed companies considered solvent; and only four firms remaining with market capitalization of $500 million or more, out of 49 before the crisis.
"If we have to start from the beginning again, then so be it," sighed an executive in Jakarta's central business district as Indonesians awaited the outcome of this week's tough negotiations with the IMF. "But this time I hope we build our economy on better foundations."