Seth Mydans, Jakarta – Indonesia's political upheaval has worsened its severe economic problems, and a high-level team from the International Monetary Fund arrived here Tuesday to explore ways to restart its rescue package.
The country's political and economic crises have become dangerously intertwined, and the fund's Asia director, Hubert Neiss, said on his arrival that the country must urgently address its leadership questions if it is to begin a real recovery.
"We have to recognize that the economic measures will only work and be truly effective if there is political stability," he said. "Along with political stability, it is important that the trust of the people in the government is restored, the support of foreign governments is obtained and market confidence is returned."
But the politics today are far from stable. President B.J. Habibie, who took office on Thursday when President Suharto resigned under pressure, promised Monday to hold a new election. But he did not set a date and the promise has only accelerated a widening struggle over the future leadership.
Rather than an orderly transition to a stable leadership, there is the possibility of political chaos as long-suppressed forces jockey to fill the vacuum left by the sudden departure of the strongman who governed Indonesia for 32 years.
New political parties have begun to form and the formerly illegal labor movement and newly potent student movement have marshaled their forces. Opposition figures debate ways to hurry a transition of power, and the military waits in the wings, its agenda still uncertain.
Neiss said he would assess the situation as quickly as he could and report to the fund's board, which must decide whether to resume disbursements from its $40 billion rescue package. They were suspended on Friday, after Suharto stepped down.
On the same day, the US treasury secretary, Robert Rubin, said it would be premature for the fund to resume disbursements as long as the political situation remained unclear.
Mari Pangestu, a leading economist here, said the IMF, the World Bank and international investors remain wary of Habibie's government, although he has installed a credible economic team.
"The greatest fear is that we will have months of uncertainty," she said. "Certainly the economic conditions have gotten much, much worse." Apart from the political questions, Neiss will find a severely weakened economy, and the fund will need to lower its estimates of the country's potential, economists said.
Foreign-exchange reserves have fallen dangerously low and the government has compensated by printing new money, driving up inflation to a projected 47 percent this year, one foreign economist said.
The country's private foreign debt, estimated as high as $70 billion, remains an intractable problem. The banking system is on the verge of collapse, its peril heightened Tuesday by a run on the country's largest private bank, Bank Central Asia.
That bank, which is partly owned by two of Suharto's six wealthy children, was a prime target of rioters two weeks ago, reportedly closing 122 offices and losing 1,250 automatic teller machines to vandals and thieves.
Surveying the wreckage, private economists have dismissed an IMF estimate of recent trends showing a 5 percent contraction in the economy. Various estimates now put the shrinkage at anywhere from 10 percent to 25 percent.
Ms. Pangestu estimates that unemployment will rise to more than 15 million this year, or nearly 20 percent of the work force. With food prices rising sharply, she said, this means that as many as 58 million people will soon be in poverty, far above the 22.5 million at the start of the year.
"You aren't going to see any investment coming in for a while," she said. "The more you look at the numbers, the gloomier it gets."
The situation is compounded by the worst drought in half a century, which has parched harvests and made it necessary to spend huge amounts of scarce foreign currency on imported food.
In a speech on Monday after his first cabinet meeting, Habibie acknowledged the need for stability to attract foreign investment and aid.
"We must honestly admit that our success in overcoming the economic crisis depends largely on foreign loans, especially to finance imports of raw material and spare parts," he said. "Foreign loans are influenced by our success in stabilizing domestic political life."
His chief economic minister, Ginandjar Kartasasmita, said over the weekend that Indonesia would cooperate with the IMF. Since the rescue package was first agreed to last October, Suharto delayed and equivocated, promising reforms and then retreating, time and again.
In a challenge to his own government, Ginandjar agreed with critics who say Habibie's government cannot provide the needed confidence. "One thing is for sure," he said. "We need to have a new government with a new mandate from the people. This means general elections as soon as possible."