ECONOMICS: Indonesia on the brink?
Far Eastern Economic Review
Dec 25, 1997
* By Margot Cohen and Salil Tripathi
Southeast Asian diplomats made much of the fact that the leaders of
China, Japan and South Korea showed up for the first time at an Asean
summit, held in Kuala Lumpur in mid-December. But investors paid more
attention to the leader who was absent: Indonesian President Suharto.
Television images of the 76-year-old president shuffling around
garden, talking to the birds and posing shakily beside his favourite
Harley-Davidson motorcycle, did little to assuage concerns about his
health -- or to scotch rumours that he had suffered a mild stroke. The
rupiah took a new dive, to less than half its value before Asia's
economic crisis began.
Suharto couldn't have picked a worse time to be "fatigued," as his
spokesman called it. The financial crisis is causing widespread
unemployment in the cities, while the countryside is suffering the
effects of the worst drought in decades.
Indonesian companies are meanwhile suffering a drought of their
as credit evaporates. With the rupiah plunging, many companies may soon
become unable to service their foreign-currency debts. Even workers who
keep their jobs have little to cheer as their traditional year-end
bonuses shrivel or disappear.
Indonesia-watchers warn that all this is a recipe for social
Wary investors are staying on the sidelines, waiting for a sign that
Indonesia will move aggressively to get its house in order. Instead,
with Suharto indisposed, what they're getting is a reminder that the
country's political future is a giant question mark.
"There isn't another country in Southeast Asia which has no
plan for succession," says Australian academic Michael Backman. "And the
market is hammering the country and currency because of that lack of
Three months remain before the March legislative session that
formally anoint a new president and vice-president. The ruling Golkar
party says Suharto will run again. Potential vice-presidential
contenders have little choice but to play a waiting game -- sudden shows
of ambition have spelled doom in the past.
With Suharto's health in doubt, the waiting colours everything.
country is run on political fundamentals now," says economist Christiano
Wibisono. "It has nothing to do with economics."