Indonesia's political and economic prospects 1998-02-19 Executive summary
Currency Board
The most significant wild card issue which can influence the medium term political
and economic situation is the currency board proposal. Its success will ensure the
socio–political situation remains under the President's control. For the President a
currency board offers the hope of containing inflation and basic food market
instability, and therefore sustaining political stability. If this does not go ahead, or
worse still fails after having been adopted, the socio–political fall out may well be too
much for the President to sustain his position.
Prof Habibie as Vice president
In relation to March's elections, President Soeharto's support for Prof Habibie as his
Vice President provides him with a buffer between himself and anyone who may seek
to use the vice–presidency to roll the President. Ambitious military leaders will
support Habibie as they see him as an implausible President and therefore someone
over whom they can leap frog to the presidency.
Succession scenarios
I have identified some 9 possible succession scenarios1. They come under 3 broad
categories, namely constitutional, quasi–constitutional and unconstitutional. Most of
the constitutional outcomes contain one inherent weakness, which is that community
pressure for real change and participation can't be contained when the anchor of the
status quo (President Soeharto) has gone. This means the new leadership may
crumble in the face of this pressure leading to a more substantive reform process
commencing. Quasi–constitutional outcomes include something of a re–run of the
process led by President Soeharto against President Sukarno (an ultimatum to leave
gracefully). If at the end of the day no succession takes place and polite ultimatums
are not taken up, more radical and uncontrollable scenarios will unfold.
An effective new coalition can be fashioned
The best scenarios in terms of seeing Indonesia back on the road to prosperity and
stability are those which involve a coalition of military and opposition civil groups, as
it provides some semblance of order and also releases the potential for long overdue
reforms to commence.
Minimalism will not provide the answer
I believe it will most difficult for any post–Soeharto successor to try and sustain the
existing status quo in terms of political infrastructure. Support for that system will
simply be too insignificant to provide a basis for a stable and effective governance.
Reform will therefore be a very high priority within the community. To deny that
reform will be to invite a failure to garner sufficient support for the new leadership.
This is a weakness in the “smooth” scenarios which can be found within the
constitutional series of scenarios.
{This report was written 10 days before the opening of the General Session of the
MPR scheduled for March 1998. At the time, the currency has recently fallen to
below Rp 10,000 to the US dollar and the accumulative impact of the currency
collapse now was being reflected in the rate of inflation which in the month of
January 1998 reached nearly 7%, the highest rate since the days of hyperinflation in
the 1960s. Fears about the impending welfare catastrophe of the crisis were
mounting. Student groups were now becoming more active with demonstrations
across the archipelago taking place on a “rolling” basis – different city each day.
The Government was clearly ruffled. Also if I recall correctly the expected “kick–in”
effect to boost confidence in the wake of the radical IMF agreement of January failed
to materialise as most considered it too ambitious and unrealistic to achieve and at
the same time Pres. Soeharto was also clearly and publicly squirming to evade the
necessary disciplines through seeking such alternatives as a currency board.
The footnotes in this document were added on 31 December 2006, as I reviewed the
original document – all with the comforting distance of almost 9 years of hind–sight!
The comments are intended to provide both a little historic context that may now have
been forgotten with time and also to provide some auto–criticism of where I believe
my analysis was flawed or perhaps biased. From the original document I have also
corrected typing mistakes and grammatical errors without changing the integrity and
substance of what was initially written. The footnotes therefore do not represent part
of the original document.}
