Suharto Steps Up Diversion Tactics as Economic Crisis Expands

For President Suharto, the year of living dangerously began Tuesday. By the day, options to redeem his reputation and save Indonesia’s economy are dwindling.

This is not the last hurrah he would have imagined just a year ago when Indonesia was flying high. But Suharto, “elected” to another five-year term Tuesday, has now reigned for 32 years, longer than any living head of state, save Cuba’s Fidel Castro. And the perception is growing that the 76-year-old president has lost touch with his people and the demands of market-driven economies.

Lee Kuan Yew, his old friend and Singapore’s elder statesman, was brought to near tears the other day telling a group of Americans how much Suharto has done for Indonesia and how little he understood the realities of a new world economic order that is crippling Indonesia, once Southeast Asia’s most influential country.

Increasingly, Western and Asian political analysts say, Suharto has become isolated, unsure whom he can trust. He has shuffled his military leadership and come to rely on his children instead of his Cabinet for political advice. The bankers, investors and envoys who once came to praise him can no longer be found.

What began last fall as a problem that affected only the elite is now a political crisis that hits 200 million Indonesians across all walks of life. It is a question of Suharto’s viability and credibility and whether he can or will dismantle the system he built to satisfy demands of the International Monetary Fund’s 50-point, $43-billion bailout package.

“Asking Suharto to clean up Indonesia is like asking the Gambino crime family to clean up the Mafia,” said Jeffery Winters, an Indonesia expert at Northwestern University. “Suharto can’t fix the problem because Suharto is the problem.”

Suharto, analysts say, faces a dilemma in his negotiations with the IMF. First, he made a few concessions to meet its demands, such as closing 16 banks, in the apparent belief that some quick-fix symbolism would satisfy the agency and his creditors.

It didn’t. Now, if Suharto complies with the IMF plan he signed in January, an independent audit of the banking system, as required in the accord, could reveal the extent to which his children have diverted huge sums from state banks; some sources have put the amount as high as $8 billion.

But if he rejects the IMF demands, Suharto runs the real risk that the agency--with Japan, Australia, Singapore and other donors--will simply pick up its money and go home. “We still believe,” World Bank chief Michel Camdessus said, “that if this problem is not solved soon, the whole thing is at risk.”

This helps explain why Suharto has been looking for room to maneuver, tossing out diversions--such as advocating a currency board to peg the rupiah at a fixed rate and making a controversial choice for vice president, B. J. Habibie. The result has been to divert public attention for weeks at a time from the real issues at hand.

Political observers here wonder why the IMF drew up an agreement that Suharto would commit political suicide by implementing. One theory holds that the agency sort of stumbled into the crisis, unaware how prominently the trail of billion-dollar corruption led to the Suharto family.

Suharto gave no hint during a 20-minute inaugural speech today what his next move will be. He said everyone must share the hardships that lie ahead and spoke of the injustice of development but made no mention of a currency board or his battle with the IMF.

Jakarta has only $10 billion in foreign reserves it can draw upon, economic sources said. Fixing the exchange rate at, say, 5,000 rupiahs to one U.S. dollar--about double the Indonesian currency’s value--would enable businesses to pay off debt at a favorable rate.

It would also let those with rupiahs convert their money into dollars, quickly depleting foreign reserves. Indonesia then would have to print more money, and that could lead to the complete collapse of the economy, financial experts say.

Habibie, 61, is to become vice president today and will be only the second civilian to fill a post that traditionally belongs to the military. A lifelong friend of Suharto, he is a technocrat with a reputation for being short on economic savvy and big on ambitious projects, such as trying to develop an aircraft industry in Indonesia. In January, when his name was leaked as a vice presidential candidate, the rupiah plummeted to a historic low.

Habibie until recently was minister of research and technology and has profited from being a Suharto insider. His family is said to own 83 businesses. The Suhartos own about 1,000.

As Suharto dickers with the IMF, his officials and children have launched a campaign to discredit the agency, saying it is using colonial-style tactics to pressure Indonesia and challenge its sovereignty. “We welcome international bodies such as the IMF and the World Bank to help Indonesia,” said Ginandjar Kartasasmita, a senior official in the ruling Golkar party. “But if that means they can impose their wills or humiliate us, we would be better off without their help.”

Western diplomats said Suharto’s ploy is shrewd, playing a nationalistic card in an attempt to shift blame and gain public support. But except for those who have benefited from his largess, most Indonesians seem to blame the current crisis squarely on Suharto. They speak of him not with hatred but with weariness and disillusionment.

It is time, the Jakarta Post editorialized Tuesday, for leaders to “refrain from jingoistic outbursts” in response to the IMF decision to delay a $3-billion disbursement to Indonesia, and “instead undertake a more honest assessment as to why the crisis is deteriorating.”

* OLIVE BRANCH: The IMF said it is willing to renegotiate with Indonesia. D1