Indonesia: No Apparent Solution

1998

Dr Harold Crouch

As expected, on 11 March the 76 year old President Soeharto was installed for his seventh five-year term after being re-elected unanimously by the People's Consultative Assembly the previous day. The Assembly also unanimously endorsed Soeharto's choice as Vice-President, Dr B. J. Habibie, the apostle of capital-intensive high-tech industrialisation. A few days later the President announced the composition of his new cabinet, among whom were his family's business partner, Mohammad 'Bob' Hasan, as Minister of Industry and Trade, and his daughter, Siti Hardiyanti Rukmana (usually known as 'Tutut') as Minister of Social Affairs. Both are among the most prominent beneficiaries of government favours in the form of construction contracts, special credit, monopolies and cartels. On the other hand, of the technocrats or their proteges who had served in every Cabinet since 1966, none was included. The composition of the Cabinet did little to raise international confidence in the rupiah which continued to hover at around Rp. 10,000 to the US dollar. The new government took office in the context of a tug-of-war between Soeharto and the International Monetary Fund over the implementation of the 50-point reform plan which the president had signed on 15 January. The IMF believed that Soeharto was trying to get round some of the agreed conditions for further aid, particularly those which harmed the business interests of his children and cronies. Soeharto was also toying with the idea of establishing a currency board which would peg the rupiah at about Rp. 5,000 - a proposal the IMF considered as unrealistic. As a result the next $3 billion disbursement of IMF aid was postponed until April. The Presidential election took place amidst rising social tensions as both unemployment and food and other prices increased sharply. Riots and attacks on Chinese shops broke out in dozens of small towns, especially in Java but also elsewhere. Meanwhile large student demonstrations protested against Soeharto's re-election. In the absence of a solution to Indonesia's economic problems, social and political unrest seems certain to rise. So far the military has been able to prevent rioting in the big cities, but there has been much speculation about whether the military would feel obliged to move against the President if economic conditions lead to bigger upheavals. Although all the senior generals are Soeharto loyalists, there are signs of sharp rivalry among some of them.

WATCHPOINT: If the IMF medicine is diluted will Indonesia's maladies be prolonged?

 

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