Suharto’s Perilous Ploy

Indonesia’s President Suharto says he’ll abide by the economic reforms laid down by the International Monetary Fund as a condition of his country’s desperately needed bailout, but he wants to embroider them with what he calls IMF-Plus. It would establish a currency board to fix the dollar exchange rate of Indonesia’s beleaguered rupiah and thereby stabilize the currency. No sale.

Both the IMF and Washington rightly oppose the idea. A rupiah rate pegged to the dollar could further exacerbate, not mitigate, Indonesia’s economic problems. It could deplete foreign reserves and push up interest rates. Furthermore, the IMF and the Clinton administration can see an even more dubious result, that the 76-year-old president’s allies and children would use the board to cash out their rupiahs for dollars and send them abroad, eroding investor confidence in Indonesia even more and undermining the IMF reforms to restructure the economy.

Already Suharto is dragging his feet on implementing those reforms and he has back-pedaled on commitments to early initiatives. With inflation soaring and unemployment fueling sporadic unrest, the long-ruling former general has clearly failed to grasp the danger of the economic situation. It is precisely his failure to follow through on the reforms that has spooked markets and investors.

President Clinton on Monday dispatched Walter F. Mondale, former vice president and ambassador to Japan, to Jakarta to encourage Suharto to embrace the IMF reforms. His consultations may be crucial. If the IMF determines Indonesia is not following the bailout plan, it can withhold the next $3-billion installment of the $43-billion aid package. Meanwhile, the World Bank has reported that at least $1 billion of its loans to the Suharto regime will be on hold awaiting an IMF decision that Indonesia is on track.

Suharto, in power since 1966 and the sole nominee in next week’s presidential election, is seeking a seventh five-year term. Little in his country’s present situation would suggest a placid future. The ethnic Chinese sector dominates business and is under pressure from looting by an Indonesian majority whose rupiahs are now nearly worthless.

Suharto helped build modern Indonesia but his crony governance has left too many vested interests with too much to lose for the IMF’s economic realignment to have a smooth ride. In contrast, South Korea, another major IMF recipient in Asia, has a democratic system that helped labor and big conglomerates make the tough adjustments to abide by its IMF rescue plan. Surely Suharto does not want to see his legacy in Indonesia undone. The IMF could help him, but not if he defies its requirements.