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Indonesia's Mystery Woman


International Business: Indonesia

Indonesia's Mystery Woman

What is Megawati's economic program likely to be?

For the first time since the custom was outlawed three decades ago, ethnic Chinese residents performed a dragon dance through the streets of Jakarta on June 3. The occasion: Legislative elections that, within a few days, were expected to produce a resounding victory for a small party led by Megawati Sukarnoputri, daughter of Sukarno, Indonesia's late founding father. Megawati would make a fine President, says the ethnic Chinese head of one conglomerate, because she is "pro-business and pro-globalization."

To Indonesia's traumatized Chinese business community, those words are reassuring. But Muslim voters came away from pro-Megawati rallies with a different message. Ratna Nigsih, 40, a batik-cloth peddler, says she expects Megawati to nationalize Chinese-owned conglomerates and "return their assets to the public." Adds Mohamad Ramli, 17, who sells chicken noodle soup on a two-wheel cart owned by his parents: "When she becomes President, I'll be able to afford my own noodle cart."DESIRES. As the votes are being counted in Indonesia's landmark June 7 election, exactly where Megawati stands on key economic issues is a critical question in Indonesian politics. Early signs are that Megawati's Indonesian Democratic Party-Struggle (PDI-P) and other opposition allies have overwhelmed Golkar, the ruling party. Even though Indonesia's complex process for selecting Presidents means she may not be the next head of state, Megawati's popular mandate gives her enormous clout.

Yet during the campaign, Megawati said little about economics. So supporters of all stripes--whether populists who expect a redistribution of wealth or professionals who crave free-market reform and economic stability--have managed to project their desires onto the same candidate.

How has Megawati achieved this feat? First, by riding on Sukarno's socialist legacy without endorsing his profligate public spending and his policy of nationalizing industries. Second, by relying on savvy advisers picked from different backgrounds. In rallies, aides shouted about recovering wealth from Suharto cronies. Behind the scenes, they assured business leaders that Megawati's platform was reformist but also pragmatic and free-market. Indeed, stocks leapt 12% the day after the vote.

The two most influential members of this brain trust are Kwik Kian Gie, a Christian ethnic Chinese economist, and Laksamana Sukardi, a Citibank-trained Muslim banker. Few of the duo's policies differ radically from those of incumbent President B. J. Habibie.

Megawati wants to implement the tough terms of the existing $43 billion International Monetary Fund bailout. That will require ending subsidies on rice and other staples and levying extra taxes to pay for a $50 billion program to clean up banks. Her chief objectives are to restore business confidence, modernize the country's financial and legal institutions, and build a social safety net to cushion the impact of future downturns on the poor (table). To make government cleaner, Megawati also wants to make ministers disclose their assets.

Megawati hopes she will have the credibility to convince ordinary Indonesians they must absorb pain now so the economy can recover. "The IMF is already here. I cannot deny that fact," she told BUSINESS WEEK hours after the polls closed on June 7. Added Sukardi: "We have to call on the Indonesian people to understand the problems and to be prepared for more sacrifice."

Megawati, however, does not intend to be a pushover for the IMF. She wants the fund to relax deadlines for ending food subsidies, for example, on account of Indonesia's plight. Since mid-1997, per-capita income has plunged from $1,200 to $400 and the number of people living in poverty has tripled, to some 100 million. The banks still have $90 billion in bad loans. The IMF "must know that every agreement can be rescheduled," she says. "If the IMF is trying to help Indonesia, it should help the people."

Megawati has only begun to focus seriously on economic policy in the past six months. That is since the huge turnouts at her campaign rallies showed she had a serious shot at government leadership. Megawati did not attend university, and her only business experience was as a part-time florist. So she brainstormed with Kwik and Sukardi--both veteran opposition legislators who hold top PDI-P posts--to draft background papers of what they called "Mega-economics."

Even so, Megawati lacked the confidence to discuss economic issues in public. In mid-May, for example, she refused to debate other presidential candidates on economic policy at the University of Indonesia because she feared organizers intended to make her look ignorant. Instead, her aides do the talking. Kwik, 64, ran his own trading companies for several decades and studied at Rotterdam's Netherlands Economic Institute. Until he entered politics in 1991, Sukardi, 43, was managing director of Lippo Bank, owned by the powerful Riady family."SUFFERING AND HUNGRY." Regardless of who's talking, the main message is the need to put the economy back on track for recovery by creating "positive sentiment." Apart from sticking with the IMF program, that means bolstering the Indonesian agency charged with cleaning up insolvent banks. "We need to solve the banking crisis once and for all," Sukardi says. "What has been done so far is partial." Longer term, the legal system must be overhauled so that it is free of government interference, says Sukardi. That will make it easier to fairly handle such tasks as restructuring Indonesia's bankrupt corporations. "Investors would love to be able to assess risk," Sukardi says. "But without legal certainties, risk is not measurable."

Another goal is to better distribute the country's wealth. "If we just continue as we are now," Megawati says, "a small group will have a chance to have a big business, while all around them people are suffering and hungry." But rather than seizing assets from the business elite, Megawati's aides suggest hiking taxes for corporations and the wealthy and using the receipts to fund education, medical care, and other social services. They also would reform tax collection to reduce rampant evasion.

To be sure, Megawati may not gain enough power to put these policies into action. The June 7 vote decided only seats in the House of Representatives. The body charged with choosing the President will have a high number of government appointees, so Golkar may be able to cobble together enough support to retain power. But with her party's strong showing at the polls, Megawati could emerge as the most legitimate voice in parliament for years to come. That will make her brain trust a force for reform that will be impossible to ignore.By Michael Shari in JakartaReturn to top


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