Indonesia is facing its greatest crisis since the 1960s insurgency. Its aging president faces a failing currency which in turn jeopadises price stability and foreign investment. These in turn threaten Indonesia’s spectacular economic progress in the past decade and could threaten social stability.
The real test is whether Indonesia’s aging President Suharto has the wherewithal to deal with the crisis. For to deal with it successfully he will have to change his whole way of thinking. Hitherto, Suharto, like other despots in the region, have cited the need for developed nations to understand the Asian way of development. Typically this has meant no effective dissent against the ruling regime and certainly no development of mechanisms whereby power could be peacefully transferred from government to opposition.
Part of the reason for that is Suharto came to power by crushing an insurgency and has feared political instability as an impediment to economic progress. There may have been some excuse for that in the late 1960s. But it does not hold in the 1990s. The Asian way is falling apart. The only question for Indonesia is whether Suharto has the strength to acknowledge it and do something about it.
At present, however, he lacks both economic and moral credibility, even though he has undoubted reserves of political strength. His lack of economic credibility was exemplified by last week’s budget which was predicated on hopelessly optimistic forecasts of growth, the government deficit and the value of the currency. His lack of moral credibility is exemplified by the way he has used his political power to increase the wealth of his family and cronies.
These two failings must cast doubt on his ability to deal with the present crisis. He has shown only a small willingness to wind back generous state contracts and special conditions to help businesses in which his family are involved. While the wealth of his own family is so huge there will be hostility, however simplistic, from people in nations supporting the IMF $US38 billion loan package, including Australia. Of course, Australia should help its neighbour, but the Australian Government will face pressure from its own voters unless the neighbour is seen helping itself. On another level, people in nations supporting the IMF plan will be hostile to soft loans going to Indonesia while Indonesia is seen to be oppressing minorities within the country and not permitting an act of self-determination in Timor.
Suharto’s political strength lies in the institutions he has built up. His Golkar Party and the Armed Forces combine to form a large majority in the National Assembly which will decide the presidency in March. If Suharto wants a seventh five-year term, as things stand, he will get it. The Constitution permits only two other parties which are in permanent minority. A peaceful transfer of power to the opposition without fundamental institutional change, therefore, seems unlike or impossible.
Suharto has cleverly sought greater support among Islamic groups, though this may be a twin-edged sword. While Suharto has been seen to be more supportive of Islam, he has still clung to the “”pancasila” doctrine he devised in 1967. “” Pancasila” means democracy through consensus, national unity (unitary government and one language), belief in one god, humanitarianism and social justice. Suharto has argued it is the only way in such a diverse country. However, the more fundamentalist Muslims in Indonesia do not want to play second fiddle to “”pancasila”. They could exploit present economic uncertainties to obtain greater political power.
The other source of political opposition is from Megawati Sukarnoputri, the daughter of Indonesia’s first president, Sukarno. At the weekend Megawati accused the ruling family of unbridled greed and called for Suharto to stand aside and declared herself ready to be president. It was an unprecedented challenge to Suharto’s power. It would only have happened because his energies are diverted to the currency crisis.
Suharto is now under enormous pressure. He is under IMF pressure for economic reform part of which must be to dismantle the apparatus of special deals for family members from state funds. He is under a contrary pressure from family and cronies to keep as many of them in place, and quite a deal of his political support comes from those cronies. He is under pressure from fundamentalist Islam whose adherents are growing. He is under pressure from Megawati who sees a chance at power for herself, though whether she has the intellectual and political skills to sustain a successful campaign against Suharto remains to be seen. She is not a Cory Aquino or An San Syi Chi (SUBS: plse check spelling). And he will come under pressure from national minorities seeking more autonomy. He also has health pressures.
Indonesia and Suharto are now on a knife edge. Full acceptance of the IMF package will mean an end to cronyism and perhaps the cronies’ critical support of Suharto. One of the reasons Suharto will find the IMF plan a bitter pill is that it insists on things like open, competitive tendering, the level playing field and the rule of law applying to commercial transactions, for purely economic purposes. But they inevitably spill over into desire for the rule of law, accountability and transparency on the political level.
But the IMF plan will also mean an end to special state subsidies for basic goods and an end to much social spending. This will erode support of Suharto by the poor. But not to accept the IMF plan will mean an inevitable currency collapse and withdrawal of much foreign capital which in turn could trigger widespread popular unrest.
Australia can only hope that Suharto can institute the reforms needed along with greater democratisation or turn power over to someone who can. It is not a hopeful prospect.