The Habibie factor

A magnanimous decision by President B.J. Habibie to withdraw from the upcoming presidential election, as strongly recommended by an alliance of Muslim-oriented political parties on Wednesday, could remove a major source of the heightened uncertainty and tension engulfing the nation. It would be an act of commendable statesmanship on Habibie's part if he chose to become an impartial guardian of the next stage of the nation's democratization process -- the election of a new and effective president.

He should have, by now, fully realized that he is part -- and a very important part for that matter -- of the seemingly endless string of crises befalling the country.

The national economy is adrift as the Habibie administration, its credibility and legitimacy wholly destroyed by the Bank Bali scandal and East Timor debacle, finds itself paralyzed to right the sinking ship. Since the International Monetary Fund, the leader of Indonesia's US$43 billion bailout, and the other largest contributors to the program, the World Bank and Asian Development Bank, have refused not only to make further fund disbursements but also to deal with the Habibie government, many reform programs have been put on hold. It is setting back the economic recovery by months or perhaps longer than a year.

The three multilateral institutions put their reputation on the line in withholding further aid because the economy could plunge into a second stage of crisis and waste the billions of dollars they have already ploughed into the reform program. But they would face similar risks if they continued helping a government which condones high-level corruption or does its best to sweep it under the carpet, which is what the Habibie administration is widely believed to have done immediately after the disclosure of the scandal almost two months ago.

The creditors did not expect that corruption, which are entrenched and institutionalized in Indonesia, to miraculously disappear within a short time. But to them as well as most Indonesians, the web of under-the-table transactions were no ordinary example of corruption even by local standards. It instead is a numbing tale of grasping corruption allegedly reaching all the way to the top of the government. The government's steadfast refusal to disclose the complete findings of the audit by independent auditor PriceWaterhouseCoopers is widely viewed as a high-level cover-up.

All the while, as uncertainty and tension simmer in the run up to the General Session of the People's Consultative Assembly, the economy is being scorched. The exchange rate of the rupiah to the U.S. dollar is about 25 percent lower than it was before Baligate was exposed in late July. This may inflict yet more burdens on the recapitalized banks, setting back their restructuring as the government, currently the majority owner in almost all major banks, may have to put up fresh equity capital.

Despite a significant windfall from higher-than-estimated international oil prices, the state budget is in big trouble due to the suspension of foreign aid, which accounts for more than 35.5 percent of total revenue. The hole in the budget may grow much bigger as the Indonesian Bank Restructuring Agency (IBRA) and Minister of the Empowerment of State Enterprises Tanri Abeng, both deeply implicated in Baligate, appear now to be too demoralized to perform their tasks of raising almost Rp 30 trillion for the Rp 218 trillion state budget. And Baligate scares off investors interested in buying some of the Rp 600 trillion worth of assets currently managed by IBRA, fearing that the assets could hide similar "land mines" which exploded in the Bank Bali snafu.

Worse still, the plan to reschedule $6 billion in government foreign debt in a bid to secure the next 2000/2001 state budget appears to be in disarray due to international creditors' destroyed confidence in the government.

As strained relations with Canberra in the wake of the East Timor ballot are deliberately whipped into jingoism by some quarters in the government and military, coal and gold mining operations in Kalimantan, Sulawesi and Sumatra are threatened. Hotels in Bali are already feeling the effects of room cancellations by Australians, who usually account for almost 30 percent of tourist arrivals on the island.

It is too late in the day for any amount of economic policy, foreign aid or investment to help Habibie cast away the uncertainty which looms over the country. Only a new, credible and legitimate government can dispel the lingering uncertainty and provide a leadership which is respected by the people and the international community.