Soeharto's challenge

Soeharto's challenge

Historians 50 years hence will undoubtedly view President
Soeharto's ascension to power in 1965 as a turning point in the
fortunes of Southeast Asia. When he first took office, seven in
10 Indonesians lived in absolute poverty. Thirty-three years
later, the country is "within striking distance" of eliminating
poverty altogether, according to the World Bank. By any measure,
this is a heroic achievement. Mr. Soeharto's heart-felt speech
last Sunday to the People's Consultative Assembly (MPR),
detailing the frightful impact of the currency crisis on his
country, was the cry of a man who now sees this remarkable
achievement threatened by the rude and merciless forces of global
capital. "It seems that everything we have built, with great
difficulty, sometimes with pain and sacrifice, has suddenly been
undermined," he said. Arguing that the economic reforms mandated
by the International Monetary Fund (IMF), in exchange for its
US$43 billion rescue package, are not working, he called for an
"IMF-Plus" alternative. His anguish was palpable, his impatience
understandable, but his call was misplaced.

What ought to be the aim of Indonesian policy can be
encapsulated in three words: restore market confidence. The key
to that is just three initials: IMF -- not plus or minus some
fraction, but as an integer, a whole package of necessary
reforms. Thailand and South Korea, two troubled economies with
IMF programs, have realized that and their diligent pursuit of
painful reforms is already bringing back stability. By contrast,
Mr. Soeharto's government, in his own words, has carried out only
"parts of the program". That is not enough. Key reforms,
including the ending of monopolies and privileges enjoyed by the
politically well-connected, have been barely initiated. And the
reforms that have been initiated thus far -- including a
rationalization of the banking system and the ending of subsidies
for wasteful projects -- have been pursued half-heartedly.
Clearly, if the IMF program is not working, it is because it has
been barely put to work. Granted, difficult changes cannot be
effected overnight, and markets, not to mention foreign
governments, need to be patient. But they can be patient only if
their patience is not tried. Regrettably, the Indonesian
government seems to have done just that. The latest "IMF-Plus"
statement is an example. Referring to the scheme to peg the
rupiah to the dollar via a currency board, Mr. Soeharto revealed
that he was now "carefully and cautiously contemplating" its
possible adoption, and challenged international institutions that
have objected to it to suggest alternatives. There is no need
here to belabor the obvious: under present circumstances,
Indonesia simply does not have the foreign reserves to make it
work.

The essential point, however, is that the IMF, a body whose
aid is essential to Indonesia's economic survival, has voiced its
reservations about a currency board. The Indonesian government's
continued on-off-maybe flirtation with a proposal that many
believe cannot be sustained, undermines international confidence.
Nothing can be done -- nothing will be done -- as long as that
confidence continues to be trifled with. In the meantime,
urgently required measures that promised relief have been put on
hold. Negotiators on the rescheduling of debts have been treading
water. Steps to recapitalize ailing banks have hit a wall as the
World Bank and other bodies have delayed their aid. And the
proposal to guarantee letters of credit, now doubly urgent as
hyperinflation becomes an increasingly real possibility, has been
put on the backburner. Mr. Soeharto told his countrymen: "Our
fate rests in our own hands." He could not have uttered a truer
word. That fate hangs poised, heavy with destiny, waiting to be
shaped. There is still a chance it can be shaped towards a happy
end. But that chance has to be grasped now, or it will slip away.

-- The Straits Times, Singapore