The rumblings from Jakarta are getting ominous. For months, President Suharto has glibly agreed to reform his economy according to the stern dictates of the International Monetary Fund--then proceeded to stall on any moves that would weaken his grip on the economy. But in recent days, Suharto's lieutenants have fired up the rhetoric. Now, they say, their beleaguered leader may flat-out refuse to abide by the imf's draconian edicts--and forgo its $43 billion bailout package. Says Din Syamsudin, a top government adviser: "I'm afraid there's a communications breakdown between us and the imf. Our people will say, `Go to Hell with your aid."'

Why would Suharto risk triggering a new Asian crisis and ruining his country's economy? It's possible the Indonesian President may be threatening to walk away from a deal to force the imf to moderate its terms. Indeed, imf Deputy Director Stanley Fischer on Mar. 10 did say the imf would be "flexible" with the Indonesians. But the imf, despite the nice talk, is refusing to cut any more checks until Suharto implements at least a few reforms.

ON THE BRINK. This game of brinkmanship is getting dangerous. Suharto would certainly like the imf to cave and hand over the aid without any preconditions. But the nationalist rhetoric indicates Indonesia is contemplating some pretty scary measures to try to swim without the imf's lifeboat. They include shutting Indonesia's economy off from the rest of the region and creating an Islamic banking system with no interest charges. "Indonesia would enter a shell, breaking ties with the rest of the world and moving into a closed economy status," says Rajeev Malik, senior economist at Jardine Fleming in Singapore.

In this scenario, Suharto may try a variation on his currency board idea, fixing the rupiah to an exchange rate of 5,000 to the dollar--roughly twice its current value. To make that rate stick, Suharto would have to impose capital controls. That in turn would create a thriving black market in greenbacks and put the rupiah on a par with the inconvertible Burmese kyat or the old Soviet ruble. To get credit flowing inside the economy, Parliament Member Fadel Muhammad says Suharto would allow the injection of fresh capital into two small Islamic banks and maybe allow the creation of a third Islamic bank.

Suharto could also use his extraordinary powers to renege on regional free-trade agreements and start dumping Indonesia's abundant reserves of oil, timber, and precious metals on world markets to barter for food or earn hard currency. Of course, the country would have to default on its $140 million foreign debt, now that usable foreign currency reserves have fallen below $10 billion. A formal default would scare off international lenders for years to come.

The result could be the ultimate collapse of Indonesia's economy, which would cause regional instability as people riot and thousands of refugees stream out of the country into neighboring states such as Singapore. Vast recurring forest fires and a severe drought have also wrecked the rice harvest this year, making Indonesia no longer self-sufficient in food. The nation now imports its two most important staples, rice and flour for noodles. If things got too bad, the loyalty of the middle class and the army could wear thin enough to ignite civil unrest and a possible coup. Already, demonstrations are spreading. "It won't take long for my staff to join in," says one bank executive. "The middle class is angry enough at Suharto to put a hatchet through his head."

Beyond fears of refugees and defaults is what Henry Kissinger termed the modern "domino effect." He's not talking about the old threat of communist hegemony but the possibility that countries such as Indonesia could fall away from the U.S. fold of free-market capitalism and open trade. That would cost the imf plenty in credibility and perhaps lead South Korea and Thailand to renegotiate their own bailout packages.

Suharto's maverick maneuvering may force Washington and its Asian allies to rein in the imf. He knows that if the financial crisis turns into a security crisis, his old allies in the State Dept. and the Pentagon could prevail over the U.S. Treasury Dept. and the imf. The Asians are getting alarmed, too. In recent days, Singapore and Japan have explored the idea of extending their own aid to Indonesia to prevent a regional cataclysm. It's Suharto vs. the world. And the world fears the old man may not be bluffing.

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