Suharto's Staying-Power

For a while, Western observers saw Indonesia's President Suharto as a fading anachronism.

Views are fast changing.

"This is a strong, wily, Machiavellian man who understands exactly what he is doing," says Harald Malmgren, a Washington economic consultant.

The problem is, no one else knows Mr. Suharto's full strategy for handling a deepening economic and social crisis that already dampens American exports.

Washington worries that a crash in the world's fourth-most-populous nation could echo through Asia, then ripple into the industrial nations' economies.

Reelected last week, by a puppet parliament, for a seventh five-year term, Mr. Suharto is currently arm-wrestling with the International Monetary Fund over conditions for an IMF loan.

The IMF is holding up $3 billion, the second installment of a $43 billion rescue package, because Indonesia has not met all its demands for austerity.

IMF weighs human cost

Last week the IMF's arm was bending.

Stanley Fischer, deputy managing director of the Washington-based lending agency, said the IMF was prepared to adjust its terms and weigh humanitarian issues that might result.

Suharto knows the IMF terms well.

When one Japanese official met with the leader and some of his advisers recently, Suharto took over the session. For 90 minutes, without notes, he outlined the IMF package in detail, discussing the pros and cons of each item.

The Japanese official said the run-down was better than the briefing papers prepared for him by his own government.

Still, many economists figure the Indonesian autocrat has little choice but eventually to knuckle under to the IMF.

"The best way to describe the situation is 'dire,' " says Gregory Fager, an economist at the Institute of International Finance, an organization of the world's largest financial institutions.

Tide of troubles

Banks have seen depositor runs; many banks are unable to make new loans. The economy is slowing.

El Nio has brought a drought to the countryside. Normally self-sufficient in food, Indonesia must buy rice abroad.

Frightened Indonesians are exchanging their rupiah for hard currencies, despite a 75 percent devaluation. Government reserves of foreign currency are down 38 percent from six months ago to an official $16 billion, perhaps less.

Crude-oil prices have plunged 30 percent in two months, and Indonesia uses oil exports to pay 80 percent of the service costs of its huge foreign debt.

"It is not a pretty picture," says Mr. Fager, recently back from Indonesia.

So what is Suharto up to?

One suspicion is that Suharto is maneuvering to protect his own family's massive business interests.

Skeptics think he will introduce a currency board that would fix the rupiah to the US dollar at a favorable exchange rate and allow his family to transfer its rupiahs to dollars, even if the board lasts only 10 weeks.

Steven Hanke, an economist at Johns Hopkins University in Baltimore, is heading to Jakarta for the third time to give advice to Suharto on forming a currency board.

Mr. Fischer, trying to avoid immediate creation of a board, said the fund could accept one if Indonesia made progress on banking and other reforms.

Another assumption is that Suharto is maneuvering for easier IMF terms.

"We are not dealing with a sick, aging, forgetful figure," Mr. Malmgren says. "We have a diabolical, clever man."

A man willing to allow riots, says Malmgren, so he can blame the IMF's austerity measures and get himself off the hook for economic mismanagement. He may assume the riots will force Washington to relent on some loan conditions.