Jan. 29 (Bloomberg) -- ``One of the nation's finest sons.'' That's how Indonesian President Susilo Bambang Yudhoyono referred to former dictator Suharto, and it was hard not to feel a tinge of despair hearing the words.

On Jan. 27, Suharto died of multiple organ failure at the age of 86. Yet just ask Transparency International why the word ``finest'' shouldn't apply to the man who ruled Indonesia with an iron fist for 32 years until his 1998 ouster. In its 2007 Corruption Perceptions Index, Indonesia ranked 143rd -- behind Gambia, Pakistan and the Philippines.

Or ask the United Nations. In September, its Office on Drugs and Crime alleged Suharto stole as much as $35 billion, 1.3 percent a year on average of Southeast Asia's biggest economy's gross domestic product, during his repressive tenure (Suharto's lawyer dismissed the report as fiction).

Or check with World Bank President Robert Zoellick. While visiting Jakarta in December, Zoellick said Indonesia needs to reduce corruption and focus on ``effective'' public spending to boost growth to the 9 percent level needed to raise living standards for its 235 million people.

When officials in Jakarta wonder why Moody's Investors Service rates their foreign-currency debt three levels below investment grade, corruption is a principle reason. It also explains why Yudhoyono hasn't attracted the $22 billion needed to build ports, roads and power plants and pull 37 million people out of poverty by adding jobs.

By saying Suharto deserves the ``highest respect,'' Yudhoyono reminded many investors why they avoid Indonesia.

Suharto Inc.

Suharto stepped down amid massive protests at the height of the Asian financial crisis. His ability to rule the world's largest archipelago -- 300 ethnic groups spanning 17,670 islands -- proved no match for the wrath of currency traders.

Indonesia is now a democracy. Yet democracy is about more than elections and constitutions. It's about what elected officials do once they are in office -- how they level the playing field for citizens and investors alike.

Suharto is gone, but the political and financial systems he created remain. He built an economy dominated by family and friends and a military of unchecked influence. The vestiges of Suharto's rule prevent most of the nation's people from feeling the benefits of 7 percent growth. Indonesia, like much of Asia, learned how to grow faster, not how to grow better.

Cult of GDP

The waning days of Suharto's life prompted a national debate about his legacy. Public opinion seemed split between those forgiving a leader who brought stability and economic growth and those demanding justice for his alleged abuses.

The nostalgia some feel for the Suharto days is among the most baffling -- and maddening -- elements of the post-Suharto era. It's all about the ``cult of GDP'' that dominates much of Asia.

``Indonesia's political and intellectual poverty, the repressive security apparatus -- these were accepted because, economically, Suharto was a hero,'' Richard Lloyd Parry wrote in his 2005 book ``In the Time of Madness.'' ``However unhappy Indonesians were with their leader, there was no doubt that, under him, most of them had become better off.''

It's a phenomenon that political scientists refer to as ``performance legitimacy.'' Suharto knew that if Indonesians felt better off, they would tolerate a stunted society.

Cronies Galore

The question always was what would happen when people start feeling poor again. The answer arrived in 1998 as Asia's crisis swept the region and set living standards back by decades. Unprecedented numbers of protesters took to the streets.

Near the end of Suharto's reign, members of his family held a significant share of 1,251 Indonesian companies, Lloyd Parry wrote. ``Behind each of the children and the major cronies were echelons of sub-cronies and sub-sub-cronies who fanned out in their wake.''

It's the great Suharto paradox. During his tenure, per- capita income in the fourth-most-populous nation quadrupled and the ratio of those living in absolute poverty declined from more than three people in five to about one in 10 by 1998. Yet Indonesia's development model proved to be a house of cards that crumbled in a matter of months.

Perhaps the bigger question is how a nation as resource-rich as Indonesia -- oil, gas, timber -- could do so little. This is among Suharto's biggest failings.

Kleptocracy

A decade after Suharto's ouster, some argue corruption hasn't been reduced, so much as decentralized. In Suharto's day, you knew who was in charge, and who should be paid. Now, the nation's system of graft is a more multilayered phenomenon.

Yudhoyono claims to be making progress, and I'm rooting for him. Newspapers now carry loads of stories about scandals and probes into corruption allegations. And clearly, doing away with three-plus decades of kleptocratic rule won't be easy.

Much of Indonesia's corruption drive has the air of window- dressing. Why not go after the real vested interests? Why not go after the Suharto family and their cronies?

Suharto escaped accountability thanks to failing health, good lawyers and protection from Indonesia's elite. A cathartic break from the past can only come by dismantling Suharto Inc. Only when corruption is markedly reduced will the fruits of economic growth trickle down to those who need it most.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: William Pesek in Singapore at wpesek@bloomberg.net

Last Updated: January 28, 2008 17:20 EST