01/26/98 A REGIME ON THE ROPES (int'l edition)

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A REGIME ON THE ROPES (int'l edition)
Suharto's power base is crumbling
It will be remembered as the day Indonesia panicked. On the bare store shelves of Jakarta, all that remained on Jan. 8 were fingernail scratch marks after millions of terrified Indonesians tried to dump their depreciating rupiah and hoard all the rice, sugar, and cooking oil they could carry. In just three days, the currency had halved in value from 5,600 to more than 11,000 rupiah to the dollar. Businesses--including those linked to the children of President Suharto--were going bankrupt in droves. Commerce, except for the hoarding of goods, had virtually halted. ''This is a state of war,'' declared a Jakarta housewife who wrestled with shoppers for the sacks of food that she took home and stacked to the ceiling.
While the situation has since calmed, the reasons behind the panic remain: Indonesians have lost confidence in President Suharto's ability to run the economy. The aging leader, 76, has been trying to assure the world community in recent days that his autocratic regime is finally committed to reforms--after first rejecting tough measures required by a $43 billion International Monetary Fund bailout. Suharto's previous refusal to slash funding for big cash-cow projects for his children had sent stocks and the rupiah into a tailspin.
But even with Suharto's new pledges, analysts say, the austerity measures demanded by the IMF are likely to inflict such pain that Suharto's days are still numbered--whether or not he can stabilize the crisis. The question is not whether his 32-year regime will survive but whether there will be a violent or smooth transition to a successor. ''It would appear the hand of God has been taken away from him. He no longer has Heaven's blessing,'' says Greg Barton, an expert on Islam at Australia's Deakin University. Adds Abdurrahman Wahid, chairman of Indonesia's largest Muslim organization: ''Now, there is no going back.''
The trouble is that the President, the ruling party, and the army cannot agree on whom to nominate as Suharto's successor. Suharto has not made a firm choice, and he appears unwilling to resign and pass the mantle to his constitutional successor, Vice-President Try Sutrisno, a former army chief. Indonesia's four most powerful generals cannot agree on a candidate, even Try Sutrisno, whom the army itself installed five years ago.
GREEN LIGHT. So in the midst of chaos, there are open calls for Suharto's resignation. In what was previously unimaginable, the appeals are loudest from the elite, the Islamic leadership, the local press, and an opposition politician who has openly declared her candidacy. That the clamor is public and doesn't result in arrests suggest that Suharto's opponents ''have the green light from the military,'' says Harold Crouch, an Indonesia expert at Australian National University in Canberra. The politician, Megawati Sukarnoputri, is the daughter of former Indonesian leader Sukarno, who was deposed in 1965. Her economic advisers say she would bring in respected technocrats to restore faith in financial policy and rein in cronyism. Yet analysts doubt she has the widespread support she would need to come to power.
Economic hardship has increased dissatisfaction with Suharto, and the situation can only get worse. The collapse of the rupiah and 50% hike in interest rates have left only 22 of the 282 companies listed on the Jakarta Stock Exchange viable. One company on the brink is Mulia Industrindo, which borrowed $475 million overseas to build an export market for glass and ceramic tile and cannot pay it back with the value of the rupiah so low. A distributor of IBM computers cannot sell a warehouse full of inventory, since prices in rupiah have become phenomenal. ''Business is frozen now,'' he laments, fearing bankruptcy. In addition, IMF austerity measures could knock out a pillar of the Suharto regime: subsidies that kept prices of rice and cooking oil low for the middle class. ''This is a situation where the pain is being felt by everyone,'' says Laksamana Sukardi, CEO of Reform Consulting in Jakarta.
Restoring confidence with Suharto still in power will be difficult. He recently destabilized his own economic policy by sacking four central bank directors, arresting three of them on corruption charges, and making it known that Bank Indonesia Governor J. Soedradjat Djiwandono and Finance Minister Mar'ie Muhammad would be fired when their terms expire in March. And even if Suharto adheres to the letter of the IMF plan, a quick recovery is unlikely. ''Even if the government makes some great announcement, it's not going to bring the rupiah back to 4,000,'' says Jonathan Harris, head of research at HSBC Securities Inc. in Jakarta.
Suharto seems to be hoping to stay in power at least through March, when Parliament is scheduled to grant him a seventh consecutive five-year term. In the meantime, there is enormous potential for violence as layoffs mount. The next couple of months could bring the worst riots since 1965. ''We're in for a very hot two months,'' says John Bresnan, head of Southeast Asia Studies at Columbia University in New York. And anti-Suharto tensions may just reach the boiling point.
By Michael Shari in Jakarta

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