Reforms Help Offset Oil Slump : Indonesia--A Potential Powerhouse Gearing Up

The 13,000 islands and islets of Indonesia form an immense basket across the bottom of Southeast Asia, brimming with resources, diverse cultures and 175 million people.

But for decades this potential powerhouse has seemed a relative void on the geopolitical map, a black hole from which nothing emanates. What cynics say of Brazil in the Americas could hold true for Indonesia in Asia: It’s the country of tomorrow, and always will be.

South Korea, Taiwan, Singapore, Hong Kong and increasingly Thailand have cracked into the circle of power in Asia and beyond, and none has the natural wealth of Indonesia. Many Americans and Europeans still look into the vastness of the archipelago and see only a tiny speck, Bali.

Look again.

Slowly, deliberately, Indonesia is taking off the wraps.

“We must ensure that we don’t repeat the mistakes of the past,” President Suharto, the country’s silver-haired, 67-year-old leader, told a congress of the ruling Golkar party in October.

In governance, that means caution, consensus and control. Under Suharto, who has held the presidency for 21 years, there will be no return to the turbulent politics of the post-independence 1960s.

“We have taken a path that corrects the mistakes we made in adopting open democracy and communism based on class conflict,” Suharto said, recalling the tumultuous events under Sukarno, his only predecessor in office. “They may work in other countries but liberalism and communism don’t work here.”

Ruling Party Challenged

Yet within Golkar itself, the iron control of Suharto’s New Order has been challenged this year by impatient military officers seeking a more open system.

Last March, at the national assembly that confirmed Suharto in his fifth five-year term, an army general seized the microphone to protest the controlled selection of a vice president. And at the Golkar convention in October, another general openly grumbled about the lack of democracy in the proceedings.

“We are becoming redundant,” observed a pleased Slamet Bratanata, a one-time Suharto Cabinet member and one of a circle of government critics whose comments are banned from publication in the Indonesian press.

What Bratanata and other intellectuals consider small victories pass little noticed by the masses of Indonesia. Their concern is their next meal.

Since independence was proclaimed in 1945 and granted by the Dutch colonialists in 1949, simply holding the country together--and feeding it--has been a challenge. From the glittering hotels of downtown Jakarta to the Stone Age tribes of Irian Jaya, Indonesia is home to 10 major ethnic groups and hundreds of subgroups speaking 200 different languages and dialects. Somehow it works.

National Pride

In the highlands of northern Sumatra, a woman of the Batak people approached a foreigner and demanded to know his native country. “Me,” she said, thumping her chest, “I’m an Indonesian.” A sense of nationhood is perhaps the country’s greatest achievement.

But divisions remain. The Bataks, aggressive Christians in an overwhelmingly Muslim country, come from a region where cannibalism was practiced just a few generations ago. “We like to say they were Christianized by ingestion, not conversion,” sniped a professional of Muslim Java.

Economic and social stability is the springboard from which Indonesia can exert its geopolitical potential, and Suharto’s government generally has been given good marks in establishing a base.

Knocked off its economic feet by the collapse of oil prices three years ago, the government of Indonesia, one of the world’s top 10 petroleum producers, adjusted quickly. Austerity budgets and wage freezes were imposed and the Indonesian currency, the rupiah, was devalued by 31%.

Growth in Exports

Suharto’s technocrats--they are known as the Berkeley Mafia since one-third of the Cabinet is U.S. educated--turned their attention to non-oil exports. In the 1986-87 fiscal year, the non-oil sector led by rubber, minerals and manufactured goods including textiles, wood products and processed foods, posted a 42% increase over the previous year. Total exports grew by 33%, according to government figures, the first overall increase since 1984.

With a public and private foreign debt of nearly $48 billion, maintaining exports is a must. The problem is exacerbated by the structure of the debt. Most of the loans have come from Japan and Western Europe and must be repaid in currencies that have appreciated against the dollar; yet Indonesia’s oil earnings are paid in dollars.

Domestically, the austerity policy can be measured in ways less abstract than an import-export balance sheet.

“We don’t talk about getting the best value for your money,” said Mei-Mei Satiaputra, a chemist for the Indonesian Consumer Organization, a private group. “We just talk about having enough for food, shelter and clothing.”

Competition Increases

Inflation is less than 10%, but with wages flat “the government’s running it pretty close,” said an American resident here. In the countryside--the majority of Indonesians make their living from agriculture--many people are getting by on two meals a day. And with an officially estimated 2 million people entering the work force every year, the competition for jobs increases.

A government worker makes about $520 a year, and a professor even less. Even a brigadier general in the privileged military draws less than $1,800, though his perks include a house and car.

Contrasted with the hard times of the workers are examples of plenty. In Manado, a Christian city in northern Sulawesi, a groom and his bride in flowing white gown were recently toasted at a hotel banquet. The cost: $1,750, a general’s annual paycheck.

Glaring Nepotism

More glaring, and politically sensitive, are the thriving businesses of Suharto’s family, particularly his children.

In the center of the roundabout of M. H. Thamrin Boulevard, Jakarta’s commercial showcase, stands the Welcome Monument, a pillar topped by a young man and a woman with arms upstretched (which expatriates have dubbed “Donny and Marie” for the two Osmond family members). In its shadow is rising the Plaza Indonesia, a commercial center anchored on a Grand Hyatt Hotel. The project is a joint venture owned in part by Bimantara Citra, a holding company headed by the president’s son Bambang.

“They should be able to say enough is enough,” said Bratanata, the government critic.

Corruption in Customs

Suharto himself inveighs against corruption, which by some estimates drained about $50 million from the economy last year. Things were so bad in the customs service a few years ago that the government brought in a private Swiss firm to handle operations.

In part, say foreign businessmen, the problem lies in an over-controlled economy. An overload of regulations are an invitation to corruption. In the last year, Suharto has moved to loosen things up, introducing a number of reforms. (“They don’t use the word liberalization here,” an outsider noted.)

The purpose is to increase foreign investment in the largely state-owned economy, and it’s working. “The Japanese, Koreans and Taiwanese are all here,” noted a Malaysian businessman, who came to Jakarta in hopes of selling rattan-processing machines. “Labor is cheap and resources are plentiful.”

In a remark that might make Indonesia’s small environmentalist movement cringe, Bob Hasan, a businessman closely identified with the First Family and head of the Rattan Industry Assn., disclosed that 600,000 tons of rattan are taken from wild stands in the Indonesian forests every year, and “if we need more, we just go deeper into the forest.”

Leader of Nonaligned

Increased foreign investment and trade will pull Indonesia into closer contact with the industrialized countries, turning outward a face deliberately withdrawn since the days of Sukarno, who strutted the stage in the early 1960s as a self-proclaimed leader of the newly independent Third World and champion of the nonaligned nations.

This year, as evidence of change, Suharto’s government toyed temporarily with bidding for the leadership of the Nonaligned Movement, but gave way to Nicaragua.

Even with Suharto’s cautious approach, Indonesia’s huge domestic market and industrial potential have made it a leader in the six-member Assn. of Southeast Asian Nations. Brunei, Malaysia, Singapore, Thailand and the Philippines are the other ASEAN members.

Former Foreign Minister Mochtar Kusumaatmadja moved into regional politics, taking the ASEAN lead in talks with Vietnam on the Cambodian issue. His successor, Ali Alatas, Jakarta’s former U.N. ambassador and once an aide to Sukarno’s peripatetic envoy, the late Adam Malik, has taken over the initiative.

A ‘Must’ Stop for Americans

When American secretaries of state swing through Southeast Asia, Jakarta is a “must” stop. The Japanese, whose World War II drive into the region was designed in part to control Indonesian resources, is now Jakarta’s No. 1 trading partner.

When a ship--American, Japanese or Soviet--steams from the Pacific to the Indian Ocean, it often transits one of the straits of the archipelago. In September, Jakarta closed the heavily traversed Sunda and Lombok straits for three days for a naval exercise. No foreign ships had to be diverted, but diplomats voiced concern and suggested that Indonesia was trying to assert sovereignty over what other seafaring nations call archipelagic sea lanes, open to all.

For more than two decades, Suharto’s government has seemed to discourage the higher profile that it is now assuming. Stung by international protests after its 1975 takeover of East Timor, a Portuguese possession, Jakarta officials discouraged visits by foreign journalists. Only in the past few years have reporters been given closely controlled trips to the area.

Any change is expected to come slowly. This is, after all, the country that has banned television advertisements to avoid heightening the expectations of its viewers.