Indonesia: From One Gang Of Cronies To Another?

Indonesia's B.J. Habibie has been in perpetual motion since he became President on May 21. The German-trained aerospace engineer's main mission is to renew confidence in Indonesia's bludgeoned economy, persuade the International Monetary Fund to resume payments under the country's $43 billion bailout, and woo foreign investors.

Habibie is a big hit among the pribumi, or indigenous Muslim, business leaders. They were cut off from the gravy train operated by former President Suharto and his family, who preferred ethnic Chinese partners. But Habibie is telling the pribumi that they'll get a fair deal in the future. Government officials even hint that the billions piled up by Suharto and his cronies will be distributed to ordinary pribumi in some way. Habibie also vows to continue a legal probe into the Suharto empire and stop lending to presidential cronies.

There are, of course, limits to what Habibie can do. Military leaders, notably armed forces commander General Wiranto, could step in and replace him as President if he goes too far.

DEEPLY SKEPTICAL. But as he panders increasingly to pribumi interests to bolster his political position, Habibie may be condemning his economic plans to failure. Ethnic Chinese tycoons, who control about 70% of the economy, fear their businesses may be confiscated. They have already pulled billions of dollars out of the country. "If Chinese money doesn't come back, [Indonesia] has little chance" of recovery, says Paul Durham, a Sydney-based managing director of BT Funds Management.

Foreign investors are deeply skeptical of Habibie. They fear that he won't reduce graft but "will just have a fairer distribution of corruption," says one. Adds Robert Rigney, a former U.S. diplomat in Indonesia: "I wouldn't get into any deal with Habibie's boys. I'd wait three or four months and see what happens." Such judgments are bad news for Habibie. He needs multinationals to unlock the $100 billion in investments that they were planning before Suharto's downfall--otherwise he has little hope of cutting unemployment, which quadrupled in a year, to 16 million.

Multinationals remain ultracautious. Nike Inc. footwear factories are filling orders from a new plant in the Philippines, says an industry source. France's Alcatel was ready to open a fiber-optic cable factory in Jakarta in June. Instead, it covered brand-new machines with tarps, locked the doors, and sent staffers home after phone sales slumped, says Chief Executive Officer Jean-Philippe Benoist.

Habibie's appointments worry foreigners and ethnic Chinese because they're heavily weighted toward the pribumi. Aburizal Bakrie, chairman of the Indonesian Chamber of Commerce & Industry and of Bakrie & Brothers, the largest pribumi conglomerate, replaced ethnic Chinese tycoon Anthony Salim as chairman of the government's Resilience Council, which is negotiating to restructure about $130 billion in offshore private and official debt. Tanri Abeng, former CEO of Bakrie and local partner of Dutch brewer Heineken, is the powerful State Enterprises Minister.

In another move, Habibie has formed a squad of seven so-called business ambassadors. Armed with diplomatic passports, they rove the world seeking foreign investment. Most are pribumi and members of Parliament, likely to vote to keep Habibie as President despite his pledge to leave office by January, 2000. "I hope we can change his mind," says Bakrie.

Now that Suharto's 32-year grip on power finally has been broken, that's the last thing investors want to hear. Besides, the Indonesians who took to the streets to force out Suharto don't want another autocracy of cronies.

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