Taking Aim at Asia's 'Crony Capitalism'

Indonesia's president seeks seventh term as he vows to end nepotism and cartels. But such reforms are difficult in Asia.

Just a few months ago, the world might not have noticed if the son of an Asian leader drove around in a Rolls-Royce.

But last week, as the US and other nations debated just how much more to bail out the region's often-corrupt companies and demand new business practices, Hutomo Mandala Putra (nicknamed Tommy) happened to flash his wealth as a child of Indonesia's president.

He arrived at a Jakarta car showroom in his Rolls, ironically to promote his pet project, a government plan to build a "national" car.

The project, like Indonesia's old economic ways, does not stand much chance to survive. Most Indonesians cannot afford the cheap sedan now.

And Indonesia, like most other East Asian nations, is being told by the International Monetary Fund (IMF) that it cannot afford the kind of official favoritism for family and friends of national leaders that helped bring about the financial plunge in Asia from Thailand to South Korea.

But can the IMF really uproot "crony capitalism," nepotism, and a host of traditional business practices in Asia? Indonesia may be the biggest test case.

With one signature last week, Indonesian President Suharto swept away a host of family privileges and agreed to other drastic measures demanded by the IMF in return for billions more in loans. On paper, he put an end to the monopolies that made his family and friends some of the world's richest people.

But Mr. Suharto also moved, on Jan. 20, to extend his 32-year rule over this nation.

The Indonesian president "agreed" to be nominated for a seventh term, making him a shoo-in for reelection in March by a largely pliant assembly.

The action comes as pressure mounts for the 76-year-old leader to step down, or at least appoint a firm successor.

But Suharto appears to be staking his future - and his family's - on rescuing the economy of the world's fourth-most-populated nation.

By signing the IMF agreement Jan. 15, he agreed to sacrifice part of his network of patronage, because the IMF, the US government, and other lenders made clear they would not help him save his economy unless he did.

"The national interest is more important than the interest of a project," Suharto's son Tommy said dutifully. In one breath, he also accused the IMF of torpedoing his attempt to launch the national car for Indonesia just to benefit Western and Japanese car exporters. "The government is desperate for funds from the IMF and the World Bank," he said.

The markets, so far, have put little faith in Suharto's intention. The Indonesia currency (rupiah), once stable at about 2,500 to the US dollar, fell after the IMF agreement, breaking through 10,000 on speculation over who might be chosen as Suharto's vice president.

Suharto has managed to stay in charge of Indonesia's 210 million people for 32 years mainly because, for most, life got better every year. Incomes grew, food supplies increased, and separatist movements and opposition parties were wiped out, bringing political stability to a nation divided by ethnicity, geography, and religion.

But the collapse of the rupiah, along with other regional currencies, has brought down a house of cards in overleveraged conglomerates, which had been built on ties to the president rather than sound business plans.

Suddenly, Indonesians face rising inflation, job losses, and political instability. Last week they rushed to the stores to stock up on staple foods, for fear they would run out or double in price.

Last October, Suharto signed an IMF draft package that included some cuts in privileges to his six sons and daughters. Investors, however, weren't pleased when Suharto quickly backtracked on that pledge and made rosy economic predictions in his 1998 budget. On Jan. 7, the stock market crashed and the rupiah collapsed. IMF and US officials came to town to persuade Suharto to give it another try,

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