By Eva Cheng
In response to Indonesian President Suharto's attempts to backtrack from the promises which he gave the International Monetary Fund in exchange for US$43 billion in emergency credit lines, the US establishment has stepped up the pressure by comparing Suharto with Iraqi President Saddam Hussein and Philippine ex-dictator Ferdinand Marcos.
The New York Times earlier this month said Washington was trying to extract from Indonesia what it has attempted to get from Iraq — major changes brought about by undermining the credibility of its ruler.
A Washington Post editorial likened Suharto to Marcos, saying both were "SOBs", but stressed that while Marcos was Washington's SOB, Suharto is his own.
Both comparisons highlight Washington's assessment that it is time to prepare a transition to a post-Suharto government.
The Republican speaker of the House of Representatives, Newt Gingrich, was even more blunt, telling the February 26 Far East Economic Review that "maybe" getting Suharto to step down should be the US goal. He added that if the IMF did not demand this, the US could not give it money.
The US holds 18% of the voting rights of the IMF, more than any other country, and in effect a veto, because major decisions require an 85% majority.
For Washington, Suharto's main crime is that he threatened to violate the IMF agreements. Disobeying the IMF could set a bad example for the rest of the Third World, undermining the IMF's authority as the arbiter of a US-dominated world economic order.
Shoring up this order has become a pressing task of the US because of the Asian economic crisis. Even the usually upbeat IMF chief, Michel Camdessus, reported to the February 7 extraordinary meeting of the Group of 24 in Venezuela that the task now before the IMF was "to keep this crisis from becoming a catastrophe of global proportions".
Clan interests
Meanwhile, Suharto and his children are turning up the nationalist rhetoric full blast. On March 10, in the wake of the IMF's withholding of a second US$3 billion tranche of the bailout loans, Suharto's eldest daughter, Siti Hardiyanti Rukmana ("Tutut") told reporters, "If the [IMF] funds sacrifice and degrade our nation's dignity, we do not want them". Some of her siblings were quoted on the same day to the same effect.
They have reason to be very concerned. Their clan's extended business interests would be hit by the IMF loan conditions, especially under the January 15 agreement.
The agreement requires immediate cancellation of 12 infrastructure projects, the removal of credit and any support to state aircraft company IPTN and the Timor "national car" project and the end of monopolies including sugar, wheat flour, cement, paper and plywood, as well as a substantial cut of tariffs on all agricultural products. The Clove Marketing Board was to go by June, to be followed by deregulation of the domestic trade of all agricultural products.
However, instead of being dropped, one of the 12 projects, Tutut's Jakarta public transport scheme, was inaugurated on February 26.
This followed confirmation by Indonesian tax authorities that the special tax exemptions for the Timor car, run by Suharto's son Hutomo (Tommy) Mandala Putra, would be restored to allow it to clear its stocks. On February 23, in a thin disguise to preserve Tommy's clove monopoly, Jakarta revealed that a new "cooperative" would be established to oversee clove marketing.
Within days of its formal abolition, a marketing cartel for plywood — previously controlled by Suharto's mate Mohamad (Bob) Hasan through a national industry body, Apkindo — was revived.
Suharto's children and mates control the lion's share of the economy, assisted by monopolies, tax exemptions and other privileges, which, together with high tariffs — especially on agricultural products — have given them protection from more powerful overseas competitors.
The US, the European Union and Australia have been battling for a bigger share of world agricultural markets. These governments back their agricultural capitalists with subsidies in various disguises to strengthen their export competitiveness.
Despite their own state support for industries, these imperialist governments demand that Third World governments stop theirs, particularly barriers to imports. This demand applies not only to agricultural imports, but also to industrial products, financial services and capital.
Armed with superior technology and productive powers, these countries know that once Third World markets open their doors, dominating them is only a matter of time.
Whether it is in Indonesia, Thailand or South Korea, the IMF invariably puts market opening as a central condition for its assistance. State support to industry has to go, to help arrest fiscal deficits and indirectly improve external debt servicing, but also to expose these industries to full-blown competition.
Dependent economy
Suharto and his clan know exactly where their interests lie, and how the IMF conditions run totally against them. The rhetoric about national dignity not only gives them a disguise for their real concern, but also helps forge a false sense of unity among all classes.
Suharto will need many such tricks in coming days, since the collapse of the rupiah has sharply revealed the stark social contradictions bred by the dictatorship and Indonesia's dependent economy.
The dispute about the viability of a currency board and Suharto's right to set one up has provided another smoke screen, creating the impression that it is the real bone of contention between the IMF and Suharto.
Details are short, but Suharto basically contemplates pegging the rupiah to the US dollar, which was what Indonesia was doing before the crisis broke out in August. The problem now is the certain drain of Indonesia's hard currency reserves if the rupiah is pegged at an unrealistically high rate.
This is exactly what Suharto wants to do — pegging it at about 5000 rupiah per US dollar when the going rate is 10,000 plus and in January reached a low of 17,000.
Under this arrangement, there would be enormous demand to exchange the rupiah for US dollars at the official rate, which Jakarta almost certainly lacks the strength to support. Among other problems, declining prices of oil (almost halved over the last year to US$12.85/barrel), a key Indonesian export, cut Jakarta's revenue by US$300 million for every US$1 drop in price.
Indonesia's external debt was estimated at US$128 billion at the end of last year. Nearly 34% of Indonesia's export income in 1996 went to debt servicing.
Export earnings will be further hurt by the now exorbitant prices of key inputs (intermediate goods and raw materials accounting for 74% of Indonesia's imports) which are crucial to Indonesia's export industry. A near shutdown of any dealings with Indonesian banks by foreign banks has made payments of any kinds extremely difficult.
The standoff between Suharto and the IMF/US is buttressed by Suharto's belief that the wealthy countries can't afford to let Indonesia collapse. The IMF's softening stance on the currency board question on March 12 indicated it was not ready to push things to the brink yet.
The Howard government has continued to focus narrowly on the interests of Australian business in its policy towards Indonesia. Reserve Bank governor Ian Macfarlane has spelled out the government's real concern quite clearly: the Suharto family's business monopolies are "peripheral issues" and the state backing of cronies is a "long-term problem" that requires "long-term solutions", but the immediate task is to rescue the currency.