Succession and stability key issues for Indonesia<\/p>\n
HONG KONG (Reuters): President Soeharto's rule over
\nIndonesia, a guarantee of stability for more than three decades,
\nis increasingly being viewed as part of the economy's problem
\nrather than the solution, analysts here said.<\/p>\n
In the wake of the country's near economic collapse, the lack
\nof a successor to the 76-year-old patriarch and concern over
\nwhether he will go quietly when the time comes are worrying
\nJakarta markets like never before.<\/p>\n
"Soeharto, for the first time in his presidency, appears
\nweak," said Christopher Wood, Asian and emerging markets
\nstrategist for Peregrine.<\/p>\n
Soeharto has won credit for engineering economic growth in an
\nimpoverished nation while forging cohesion among Indonesia's huge
\npopulation of 200 million people scattered across a vast
\narchipelago.<\/p>\n
These achievements are widely acknowledged in Asia, despite
\nWestern objections to the former army general's sometimes brutal
\nrule.<\/p>\n
But many now doubt whether the strengths that have served
\nSoeharto so well in the past are appropriate to the new
\nchallenges faced by Indonesia.<\/p>\n
The greater financial transparency and free-market competition
\nrequired as part of the US$43 billion aid package agreed upon
\nwith the International Monetary Fund (IMF) will be painful for
\nSoeharto to swallow.<\/p>\n
Leadership will be required to implement the revised economic
\nplan laid down by the IMF, says Marshall Mays, chief strategist
\nat Nikko Securities.<\/p>\n
"There are lots of loose bits and pieces that paint a good
\npicture but no one is compiling a coherent plan," he said.<\/p>\n
There have been drastic revisions to Jakarta's budget tabled
\nlast week, and promises of an end to lucrative monopolies held by
\nSoeharto's friends and relatives.<\/p>\n
These and other pledges have helped to shore up investor
\nconfidence, but most fund managers want to see concrete evidence
\nof economic reform and liquidations of non-performing businesses
\nbefore buying back into the country.<\/p>\n
"We haven't seen major companies go bankrupt although the
\ncurrency's fallen 70 percent. Why not? They've got to go
\nbankrupt. It makes you wonder whether they're being propped up
\nbehind the scenes," John Seel, sovereign analyst at Bear Stearns
\nsaid.<\/p>\n
Banking sector reform giving regulators the ability to shut
\ndown rotten banks, and bankruptcy legislation allowing the
\nliquidation of indebted firms were needed to begin the shakeout
\nprocess, analysts said.<\/p>\n
Whether Soeharto is up to the task is a big question for
\nforeign investors.<\/p>\n
"You can play these markets now with five big stocks," one
\nhead trader said. "Nobody cares about them any more."<\/p>\n
Terence Mahoney, managing director at TCW Asia, said the weak
\nrupiah reflected the increased social and political risk premium
\nassociated with an unstable regime.<\/p>\n
"Major concessions have been made by Soeharto, but we still
\nhave an election coming up, we don't know who his successor will
\nbe, and unlike Thailand and Korea where you really seem to have
\npublic support (for reform) there still seems to be a lot of
\nfriction in Indonesia," he said.<\/p>\n
Peregrine's Chris Wood said Indonesia required a change in
\nleadership, just as South Korea did before foreign confidence was
\nrestored. The key, he said, was for Soeharto to leave peacefully.<\/p>\n
"If he does, I think there's every chance for a successful
\ntransition. If he doesn't, we've got a problem."<\/p>\n
But others said the politics had been overplayed.<\/p>\n
Try Sutrisno was Vice President under Indonesia's
\nconstitution, which clearly designated him as Soeharto's
\nsuccessor, said Jake van der Kamp, strategist at ABN Amro Hoare
\nGovett.<\/p>",
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