Indonesia Risks Suharto Dynasty Rerun as Son-in-Law Also Rises

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Prabowo Subianto, Indonesian presidential candidate Prabowo delivers his response during the third presidential debate in Jakarta, on June 22, 2014. Bankrolled by his tycoon brother, and with the support of allies including Suharto’s old party, Prabowo, 62, has made no bones about his desire to roll back democratization and reinstate the supremacy of the president.

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Prabowo Subianto, Indonesian presidential candidate Prabowo delivers his response during the third presidential debate in Jakarta, on June 22, 2014. Bankrolled by his tycoon brother, and with the support of allies including Suharto’s old party, Prabowo, 62, has made no bones about his desire to roll back democratization and reinstate the supremacy of the president. Close

Prabowo Subianto, Indonesian presidential candidate Prabowo delivers his response during the third presidential... Read More

Pins featuring presidential candidate teams of Joko Widodo, with Jusuf Kalla, and Prabowo Subianto, with Hatta Rajasa, sit on display in Jakarta, on July 2, 2014. Indonesia's choice between a return to authoritarianism or further democratization comes after a decade of uneven economic gains under former general Yudhoyono, who is barred from running again after his second term in office. Photography: Adek Berry/AFP/Getty Images Close

Pins featuring presidential candidate teams of Joko Widodo, with Jusuf Kalla, and Prabowo Subianto, with Hatta... Read More

Photographer: Timur Matahari/AFP/Getty Images

Joko Widodo, Indonesian presidential candidate, third left, known as Jokowi, attends a campaign in Bandung, on July 3, 2014. Jokowi has cultivated a public image of his poor roots that is distinct from the nation’s previous leaders. As governor of Jakarta, he built a reputation for attacking corruption, expanding free health care and tackling the city’s transport problems. Close

Joko Widodo, Indonesian presidential candidate, third left, known as Jokowi, attends a campaign in Bandung, on July... Read More

An Electoral Commission Officer inserts ballots and seals the box during the preparations for the Presidential Election in Surakarta, Central Java, on July 3, 2014. Indonesia with a population of about 250 million people across a 5,200-kilometer-long archipelago of more than 900 inhabited islands will go to the polls July 9. Photography: Agoes Rudianto/Anadolu Agency/Getty Images Close

An Electoral Commission Officer inserts ballots and seals the box during the preparations for the Presidential... Read More

Sixteen years after the overthrow of the dictator Suharto, Indonesia is turning back toward that regime as his former son-in-law pulls level in the race to run the world’s third-largest democracy.

Prabowo Subianto, one of Suharto’s youngest generals, who was fired from his post in the army in 1998 for his role in the abduction and torture of pro-democracy activists, has overtaken Jakarta Governor Joko Widodo in opinion polls less than a week before the July 9 election. Widodo, known as Jokowi, has squandered a lead of more than 30 points with a disorganized campaign that raised Prabowo’s appeal as a potential strong leader.

“Prabowo represents, at the very least, the turning of the tide and the beginning of what might be a serious authoritarian reversal,” said Edward Aspinall, a professor of politics at the Australian National University in Canberra. “He emerged from the very heart of the old authoritarian system.”

Bankrolled by his tycoon brother, and with the support of allies including Suharto’s old party, Prabowo, 62, has made no bones about his desire to roll back democratization and reinstate the supremacy of the president. After a decade of stagnation and widespread corruption, voters in the world’s largest Muslim-majority nation are listening.

Pollster Roy Morgan said on June 30 the election is now too close to call after its latest survey showed Jokowi’s lead has shrunk to 4 points, from 18 in May. Among the 17-30 age group, who mostly reached voting age after Suharto’s overthrow, Prabowo is ahead, according to the poll. Late last year, a survey put Jokowi’s lead as high as 33 points.

Missed Target

Outgoing President Susilo Bambang Yudhoyono failed to meet his target of 7 percent annual economic growth during a 10-year rule even as Chinese demand sparked a commodities boom for his resource-rich country. While mining magnates piled up wealth, a failure to build roads and ports or curb bureaucratic corruption stifled development elsewhere in the economy.

Prabowo has capitalized on the sense of drift with a “get-things-done” message backed by better funding. With about $150 million in assets, Prabowo is almost 60 times wealthier than his rival, the Corruption Eradication Commission said on July 1. His brother, Hashim Djojohadikusumo, has interests from mining to paper and was worth $700 million in November, Forbes estimated.

“He’s got powerful backing and he’s got a message that resonates with a lot of Indonesians and he’s able to get in front of them and spread the word,” said Tim Condon, Singapore-based head of Asia research at ING Groep NV, who worked for the World Bank in Jakarta from 1992 to 1996.

Political Throwback

Spreading that word means reaching a population of about 250 million people across a 5,200-kilometer-long archipelago of more than 900 inhabited islands. Prabowo’s platform of a firm grip over the nation offers a throwback to an era before political pluralism, when cartels, many run by Suharto relatives, dominated the economy.

Prabowo has made repeated references during his campaign to a return to the 1945 constitution, before post-Suharto reforms reduced the power of the president. In a debate on June 28 in the capital, he questioned whether the country even needs direct elections.

“How do we turn back the clock of history?” said Prabowo, likening direct elections to someone addicted to cigarettes. “It’s been felt so good for so long, then asking him to stop, the process will be very difficult.”

Jokowi said on July 3 that a return to indirect elections would be a “setback.” On television station TVOne yesterday, Prabowo denied that he wants to be a dictator and said that, as a soldier, he had taken an oath “to guard the constitution.”

Territorial Disputes

The winner of the July 9 vote will need to steer Asia’s fifth-biggest economy through major shifts in the region’s trade patterns and geopolitics. Chinese factories that drove Indonesia’s mining boom are moving abroad, sparking a race to gain a bigger slice of manufacturing. Territorial disputes are brewing in the South China Sea. And Indonesia’s rising population is straining the nation’s ability to provide enough education and jobs amid a weak global recovery.

A victory for Prabowo would make him the sixth leader linked to Suharto, or the previous dictator he overthrew, Sukarno. After student protests culminated in Suharto’s ouster in May 1998, the country was briefly run by B.J. Habibie, who served under the former dictator for 20 years. Then came a 21-month stint from religious leader Abdurrahman Wahid, a former Suharto ally, followed by Megawati Soekarnoputri -- the daughter of Indonesia’s founding father Sukarno.

Furniture Salesman

Jokowi, 53, a former furniture salesman, has cultivated a public image of his poor roots that is distinct from the nation’s previous leaders. As governor of Jakarta, he built a reputation for attacking corruption, expanding free health care and tackling the city’s transport problems.

The choice between a return to authoritarianism or further democratization comes after a decade of uneven economic gains under former general Yudhoyono, who is barred from running again after his second term in office.

Since 2004, the economy has grown an average 5.8 percent a year, state debt has declined, foreign investment has risen to a record and the country has gained an investment grade.

Much of that achievement was due to a boom in commodities, driven by Chinese demand. Resources such as oil, gas, gold and coal make up 65 percent of the country’s exports, according to Finance Minister Chatib Basri.

“What we have achieved so far, at least for the greater part, is maybe by luck,” said Adrianus Mooy, 78, a central bank governor for five years during Suharto’s rule. “Indonesia is blessed with a lot of natural resources. But manufacturing is not growing, agriculture is not growing, or is growing below average.”

Fuel Bill

Indonesia’s oil production, which began in the 1880s, led to another legacy of the dictatorship days: subsidized fuel -- a popular institution that this year may cost the government 246.5 trillion rupiah ($20.7 billion).

“SBY’s leadership put the country in a holding pattern,” said David Hill, a professor of Southeast Asian Studies at Perth’s Murdoch University, referring to Yudhoyono by his initials. A Prabowo victory could return Indonesia to a more closed society with a stronger military while Jokowi may foster an inclusive and open style of government, he said.

Prabowo is “beating the economic nationalist drum,” said John McCarthy, Australia’s ambassador to Indonesia from 1997 to 2000. “The Indonesians are tired of foreign investors coming in and taking a lot of money out, particularly in the mining sector.”

Both candidates have pledged to boost growth and spend on infrastructure. Jokowi said he’ll improve regulations to attract investment and cut red tape. Prabowo wants to raise more money from capital markets and tax, as well as spur economic expansion by doubling the rate of borrowing.

Economic Risk

“Jokowi’s proposed changes are not so much in terms of economic reform, but in bureaucratic reform and improved service delivery,” said Jeffrey Neilson, Indonesia coordinator at the Sydney Southeast Asia Centre at the University of Sydney. “A Prabowo victory would likely reinvigorate the inner circles of power that held sway under Suharto, and that would not be good for the economy.”

Prabowo was fostered throughout his military career by Suharto, who ultimately appointed him head of the army’s crack Strategic Reserve Command in Jakarta, the garrison Suharto himself commanded when he overthrew Sukarno.

At a recent campaign debate, Prabowo’s former wife Siti Hediati Hariyadi, known as Titiek Soeharto, was in the front row of the audience, fueling local media speculation that the two may get back together.

Suharto Adviser

Prabowo’s father was an architect of the economic programs in the late 1960s after Suharto took power.

A Prabowo win could weaken the currency on “concern that Prabowo may enforce nationalistic policies that may discourage foreign investment,” Morgan Stanley analysts including Geoffrey Kendrick and Kewei Yang wrote in a note on June 26.

That’s been reflected in the market as Prabowo closed the gap on his rival. The rupiah has slid 4.7 percent since March 31, the worst performance among 24 emerging-market currencies tracked by Bloomberg.

Stocks and the rupiah declined after Prabowo announced in May that Golkar, the country’s second-biggest party, would ally with his Gerindra party.

Golkar kept Suharto in power for 32 years, during which Indonesia was often praised by the World Bank and other lenders for rapid economic growth and poverty eradication. The regime was also regularly voted among the most corrupt in Asia, which enriched Suharto’s relatives and cronies and muzzled the press.

Stolen Loans

Government officials may have helped themselves to 20 percent of the total World Bank loans intended for the country from 1967 to 1997, an internal report showed.

While Jokowi’s campaign has pushed his image as a self-made man, he has his own political ties to the past. His party is that of Megawati.

“There are big questions about what role Megawati is playing in his rise,” said Jemma Purdey, a Melbourne-based research fellow at Deakin University and author of “Anti-Chinese Violence in Indonesia, 1996-1999.” “She’s clearly the kingmaker and you can’t imagine that her role would stop once the election is over.”

Many of the country’s biggest investors will be watching for changes in the resources industry, which has attracted companies such as BHP Billiton Ltd., Freeport-McMoRan Copper & Gold Inc. and Newmont Mining Corp. In the past three years, the government has moved to decrease foreign-owned stakes in some mines and banned the export of ores to encourage more refining in the country.

“Indonesia is at a pivot point here, a real crossroads,” said Murdoch University’s Hill, author of “Journalism and Politics in Indonesia”. “Regardless of who wins, Indonesia will probably become a different country.”

To contact the reporters on this story: Sharon Chen in Singapore at schen462@bloomberg.net; Jason Scott in Canberra at jscott14@bloomberg.net

To contact the editors responsible for this story: Adam Majendie at adammajendie@bloomberg.net; Rosalind Mathieson at rmathieson3@bloomberg.net Rosalind Mathieson

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