The Indonesian government and the International Monetary Fund (IMF), a lending agency that has put together a $43 billion package to help this country's reeling economy, have pushed their already testy relations closer to a breakup.
The week ahead seems certain to be a rocky one for Indonesia in international markets as the government and the IMF test each other's will. Indonesia must consider whether it can survive without the international assistance the IMF offers. The US and the other rich countries that back the IMF must decide whether they are willing to watch Indonesia sink deeper into its economic morass, causing problems that would spread to the rest of Asia.
According to a minority-party lawmaker who met with President Suharto yesterday, Indonesia's leader voiced concerns about the suitability of the IMF program - a plan he agreed to Jan. 15. Legislator Jusuf Syakir said Suharto "described that indeed the IMF package and the IMF requests are aiming for a liberal economy, which did not agree" with part of Indonesia's Constitution.
"It seems to me he is looking for a rationale for walking [away from the IMF pact], which would be a disaster," says a Western analyst in Jakarta who spoke on condition of anonymity. "Or he is simply posturing."
Apparently worried about the pace of reform, the Fund said Friday it would delay at least until April the disbursement of a second $3 billion in loans that Indonesia was due to receive March 15.
The IMF conditions its loans on economic reforms, and it wants Indonesia to stop allowing certain monopolies, strengthen its banking industry, and eliminate some state subsidies.
The country has followed through on some elements of the IMF's demands, but many analysts say the government is backsliding on these measures and resisting others, partly because Indonesia has long valued a "guiding hand" role for the state in the economy and partly because businesspeople and family members close to Suharto have made fortunes taking advantage of an uneven economic playing field.
Suharto, for his part, has openly complained that signing on with the IMF has yet to produce tangible benefits. The Indonesian currency has not yet recovered from losing 75 percent of its value against the dollar since last July. The depreciated currency is hobbling firms with dealings abroad and causing prices to double and triple across the country.
The absence of a turnaround has caused the president to consider fixing the value of the Indonesian rupiah to a stronger currency, a move the IMF strongly opposes. The Fund argues that Indonesia does not have the resources to sustain such a system and that its implementation would deepen the crisis.
One of Suharto's sons, businessman and ruling party official Bambang Trihatmodjo, said yesterday that he thought the government would adopt a fixed rate for the rupiah after his father is sworn in for a seventh five-year term as president this week. Mr. Trihatmodjo also said the country would continue implementing IMF reforms.