Ugly Picture in Indonesia

It wasn’t a pretty picture. President Suharto assumed his seventh term surrounded by his relatives and cronies. The image was a powerful illustration that little has changed in Indonesia’s longtime corruption, once accepted amid booming growth but now part of an economic nightmare.

Despite recent student demonstrations, food riots and demands for reform by the International Monetary Fund, Suharto packed his new Cabinet with die-hard loyalists. The president replaced the technocrats and advisors who might question his actions. He named his eldest daughter minister for social welfare and timber tycoon Mohammed “Bob” Hasan minister for industry and trade. Hasan, for one, has much to lose if Indonesia fully adopts the IMF’s stringent economic reforms because the plywood cartel he runs will have to be dismantled. Some pet commercial projects of Vice President B.J. Habibie likewise would suffer.

The status quo Cabinet further erodes world confidence, which has been waning ever since Suharto began waffling on the IMF obligations. He was holding out for the establishment of a currency board that would artificially peg the besieged rupiah currency to a fixed exchange rate. That would stop the free fall in the rupiah but unduly benefit the wealthy--Suharto’s family and pals, in short his Cabinet. The IMF rightly has held up the second installment of the $43-billion bailout package until next month.

Ordinary Indonesians have worked long and hard to build their country. Now they are dealing with skyrocketing inflation, unemployment and social unrest. The best outcome would be that the new Cabinet would act as more than just a yes group to Suharto, that it would help him embrace the IMF reforms. The IMF could respond with some adjustment to the plan on humanitarian issues, such as allowing Indonesia to continue subsidizing food to help offset the plunge in the rupiah. But basic banking and monetary reforms that would demolish governmental corruption cannot be bargained away.

Suharto, by invoking nationalism to resist reforms, could put Indonesia on a disastrous course. The nation is heading toward a meltdown of his own doing, and at some point there may be nothing left that the West can do.