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