Succession and stability key issues for Indonesia

Succession and stability key issues for Indonesia

HONG KONG (Reuters): President Soeharto's rule over
Indonesia, a guarantee of stability for more than three decades,
is increasingly being viewed as part of the economy's problem
rather than the solution, analysts here said.

In the wake of the country's near economic collapse, the lack
of a successor to the 76-year-old patriarch and concern over
whether he will go quietly when the time comes are worrying
Jakarta markets like never before.

"Soeharto, for the first time in his presidency, appears
weak," said Christopher Wood, Asian and emerging markets
strategist for Peregrine.

Soeharto has won credit for engineering economic growth in an
impoverished nation while forging cohesion among Indonesia's huge
population of 200 million people scattered across a vast
archipelago.

These achievements are widely acknowledged in Asia, despite
Western objections to the former army general's sometimes brutal
rule.

But many now doubt whether the strengths that have served
Soeharto so well in the past are appropriate to the new
challenges faced by Indonesia.

The greater financial transparency and free-market competition
required as part of the US$43 billion aid package agreed upon
with the International Monetary Fund (IMF) will be painful for
Soeharto to swallow.

Leadership will be required to implement the revised economic
plan laid down by the IMF, says Marshall Mays, chief strategist
at Nikko Securities.

"There are lots of loose bits and pieces that paint a good
picture but no one is compiling a coherent plan," he said.

There have been drastic revisions to Jakarta's budget tabled
last week, and promises of an end to lucrative monopolies held by
Soeharto's friends and relatives.

These and other pledges have helped to shore up investor
confidence, but most fund managers want to see concrete evidence
of economic reform and liquidations of non-performing businesses
before buying back into the country.

"We haven't seen major companies go bankrupt although the
currency's fallen 70 percent. Why not? They've got to go
bankrupt. It makes you wonder whether they're being propped up
behind the scenes," John Seel, sovereign analyst at Bear Stearns
said.

Banking sector reform giving regulators the ability to shut
down rotten banks, and bankruptcy legislation allowing the
liquidation of indebted firms were needed to begin the shakeout
process, analysts said.

Whether Soeharto is up to the task is a big question for
foreign investors.

"You can play these markets now with five big stocks," one
head trader said. "Nobody cares about them any more."

Terence Mahoney, managing director at TCW Asia, said the weak
rupiah reflected the increased social and political risk premium
associated with an unstable regime.

"Major concessions have been made by Soeharto, but we still
have an election coming up, we don't know who his successor will
be, and unlike Thailand and Korea where you really seem to have
public support (for reform) there still seems to be a lot of
friction in Indonesia," he said.

Peregrine's Chris Wood said Indonesia required a change in
leadership, just as South Korea did before foreign confidence was
restored. The key, he said, was for Soeharto to leave peacefully.

"If he does, I think there's every chance for a successful
transition. If he doesn't, we've got a problem."

But others said the politics had been overplayed.

Try Sutrisno was Vice President under Indonesia's
constitution, which clearly designated him as Soeharto's
successor, said Jake van der Kamp, strategist at ABN Amro Hoare
Govett.