Indonesians Brace for Bite of Reforms

The day after President Suharto signed on to stringent reforms designed to save the faltering economy, Indonesians braced for things to get worse before they get better.

On Friday, shoppers lined up past sundown to buy subsidized staple goods at government stands, as investors expressed concerns whether the reforms required by the International Monetary Fund were the right prescription for the economy or whether Suharto can stick to them.

“They say the changes will help our country in the long run, but I’m worried about tomorrow,” said construction worker Haji Mustofa as he helped load six boxes of cooking oil onto a pushcart at an open-air market. “Prices are going up, up, up.”

On Thursday, as IMF Managing Director Michel Camdessus watched with arms folded, Suharto signed a new letter, promising to carry out far-reaching reforms. Now, almost everyone in the country will feel the pain, from Suharto’s son who will lose special tax breaks for his car company and control of a lucrative clove cartel, to the average Indonesian, as unemployment and inflation are expected to increase.

Traders had buoyed the Indonesian stock market earlier in the week on the good news that Suharto would bend to international pressure to follow IMF guidelines in exchange for a $43-billion bailout.

But after the 76-year-old leader hinted that he disagreed with some of the changes and wanted to serve a seventh term as president to oversee their implementation, investors took it as a bad sign. “This week, we saw many problems solved, but they didn’t address the most important one--Suharto,” one banker said. “He created the mess, and for him to be the one in charge of cleaning it up is not reassuring.”

Suharto, who guided Indonesia’s rising prosperity in 32 years of rule, has seen his credibility crash along with the economy in the last six months. Critics say that blatant favoritism toward his family and friends and his refusal to name a successor have compounded anxiety about the country’s future. Opposition leaders have called on him to step down.

*

“With the surrender of our policy to the IMF, our president has shown he is no longer capable of handling the country on his own,” one government official said. “He has traded away our national interests for his own survival.”

The president seems to have bought himself some time at this crucial moment by bowing to the stern IMF demands for fiscal discipline. Barring huge protests, he will probably be endorsed by the national parliament in March for another five-year term.

While accepting the IMF remedies for Indonesia, Suharto said Thursday that the international agency’s assessment of his country’s prospects was too harsh. He blamed part of the country’s problems on the regional economic turmoil and on foreign speculators.

“We have 30 years’ experience building a strong foundation, then in six months, it collapses, not because of an internal crisis, but because there is manipulation of [our] currency,” he said in a rare news conference.

Since the region’s troubles began in July, Indonesia’s currency, the rupiah, has fallen 70%. It lost a quarter of its value in one day last week, sparking a wave of panic buying.

Riots broke out Thursday in the eastern part of Java, Indonesia’s main island, after there were price increases and shortages of essential goods. A convoy of motorcyclists raided stores in Banyuwangi, forcing shopkeepers to sell their goods at low prices, local newspapers reported. The situation had calmed Friday, but many were worried about the prospect of more social unrest next month, as prices go up while millions more people are predicted to lose their jobs.

“The most important thing is to keep the factories and companies running,” said Jefferson Dau, a director of Kukmi, an association representing small and medium-sized businesses. “It’s a life-and-death matter for workers.”

Although the IMF package requires cuts across the board, eliminating expensive cartels and pet projects of Suharto’s inner circle, analysts predict that the “little people” will be the hardest hit.

An end to subsidies on oil and gas will mean more expensive fuel and transportation prices--costs that make up about a third of the average urban family’s budget, economists say. Price caps on eight essential goods, including cooking oil, sugar and milk, will be lifted Feb. 1, and consumers will probably bear the brunt of the predicted 20% inflation.

“Gas prices will go up at least 20%, but that’s OK,” said Hamid Latconsina, the head of a transportation consortium. “We’ll just pass on the cost.”