Businessweek Archives

Commentary: Suharto's Master Plan: Save Suharto


International Business: COMMENTARY

COMMENTARY: SUHARTO'S MASTER PLAN: SAVE SUHARTO

One day he is mandating broad financial reforms to help business, the next he is cracking down on a prominent businessman. Sometimes he sounds like a statesman: Then he terrifies the markets with his imprudent choice of vice-president.

So it goes these days with President Suharto of Indonesia. By turns conciliatory and defiant, he is baffling observers who wonder if he knows what he is doing. Analysts may be asking the wrong question, though. Suharto may not have a coherent survival plan for Indonesia. But he may have a canny survival plan for himself. Put simply, he is combining concessions with hard-line moves to keep his opponents off balance and delay any efforts to oust him.

VAGUE. Seen in this light--that Suharto is playing a game of survival--his moves make sense. Take his latest economic strategies. His reforms are just enough to keep foreign and local businesses hoping for real improvements, and International Monetary Fund aid flowing. But they are vague enough to prevent anything really substantial from happening soon. New banking reforms, for example, allow foreigners to buy Indonesian banks. But the reforms skirt the legal issue of how current regulations preventing it will be changed.

Likewise, a voluntary moratorium on debt payments by Indonesian companies is supposed to bring an organized and rapid solution to the debt problem. But local companies know they don't have to pay soon: Liberal local bankruptcy laws prohibit creditors from forcing repayment for 10 years anyway. That will keep foreign banks from readily lending to Indonesian companies for years to come.

Meanwhile, Suharto is trying to keep his opponents cornered. Indonesian military intelligence agents on Jan. 26 summoned Sofjan Wanandi, a well established ethnic Chinese businessman, to headquarters for questioning. The allegation came as a shock to Wanandi: that he had helped finance a terrorist bombing attack. Wanandi seems an unlikely troublemaker. He's chairman of the $1 billion Gemala Group, the joint-venture partner for 25 foreign companies, including British drug giant Glaxo Wellcome PLC and Japan's Nomura Securities Co. Like many Indonesian businessmen feeling the pinch, Wanandi has been openly critical of Suharto's management of the economy. He says the government is making a "scapegoat" of him, and denies any involvement in terrorism.

In another masterly move, Suharto has put forward unpopular Research & Technology Minister B.J. Habibie as his choice for vice-president in March, when Suharto's term is due to be renewed. Habibie is best known for squandering $2.5 billion in state funds on a money-losing aircraft plant. Investors fear Habibie could never return the economy to health if he were President.

Yet many Indonesians say Suharto may be using Habibie as an insurance policy to stay in power. By making the unacceptable Habibie his legal successor, Suharto is offering an alternative far less palatable to the business community than his own continued hold on power. "The thought of Habibie in Suharto's office is more frightening than anything I can think of," says one U.S. banker.

It's a sly move. But the Habibie strategy risks alienating the military. Military leaders dislike Habibie because he bungled the purchase of warships and forced them to buy rifles and missiles from factories he runs. Appointing Habibie would also shunt aside current Vice-President Try Sutrisno, a retired army chief and a previous pick by the army. Says Adam Schwarz, an Indonesia expert at the Council on Foreign Relations: "It displeases more people than it pleases, and this is a time Suharto needs friends." For now, the troops are kept loyal by a steady supply of rice and cooking oil and assurances that businesses run by generals will remain untouched.

Suharto's real test will come in early February after Ramadan, the Islamic month of fasting. If the rupiah remains depressed and interest rates stay high enough to strangle business, factory gates will shut on millions of workers returning to work from their drought-stricken villages. Suharto's 32-year-old regime may be proving adept at shielding itself from foreign bankers and market forces. Hunger and joblessness, however, will be much more difficult tests for his survival strategy.By Michael Shari


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus