Wahid's Cabinet Coup

These new ministers could make a difference

Amid a swirl of political intrigue, President Abdurrahman Wahid of Indonesia unveiled a new Cabinet last week. Two men, Bambang Yudhoyono and Rizal Ramli, both named "Coordinating Ministers," are the linchpins of the blind cleric's new team. Ramli is charged with restoring order to the economy, which in recent months has shown faint signs of recovery. Yudhoyono, a former general, inherits the task of doing the same in the streets of Indonesia. Singapore Bureau Chief Michael Shari spoke to both men after their appointment. His report follows:


It was hardly an auspicious start for Indonesia's new economic czar. Rizal Ramli's name was at the top of the list when President Abdurrahman Wahid and Vice-President Megawati Sukarnoputri met on Aug. 23 to discuss the composition of a new Cabinet. And Megawati welcomed Ramli's appointment. The trouble was that the list included not one of her allies. Upon seeing that Wahid had outfoxed her once again, Megawati, according to one of her aides, burst into tears and fled the room.

Political drama is business as usual in Jakarta, and the Cabinet coup was classic Wahid. But the President's actions will only worsen political infighting--and that's the last thing Rizal Ramli needs as he prepares to embark on a controversial plan to rebuild Indonesia's economy. As it is, foreign investors are becoming increasingly allergic to the rising tide of communal violence in the country, not to mention months of reversals in economic policy and personnel changes at the top.

Ramli is Indonesia's second Coordinating Minister for Economy & Finance in 10 months. His predecessor, Kwik Kian Gie, scared investors with warnings that their security could not be guaranteed and was widely deemed too indecisive. In contrast, Ramli, 47, is a garrulous politician with a reputation for getting things done. He says the economy--which is expected to grow 4% this year--has nowhere to go but up. "My job," he says, "is to accelerate the process."

Ramli is by all accounts a resolute manager. His most recent task was cleaning up Indonesia's famously corrupt National Logistics Agency, or Bulog, which distributes rice, soybeans, and other staples. In less than five months at Bulog, Ramli sacked 80 managers for graft. Ramli also has been a staunch opponent of Suhartonomics. Before earning a doctorate in economics at Boston University in 1990, he spent a year in an Indonesian jail for exposing the failings of trickle-down economics in Suharto's Indonesia. "Ramli is a good choice because he knows how international investors think and how the global economy works," says noted Indonesian academic Jusuf Wanandi.

Still, when Ramli unveiled a broad economic blueprint in late August, reaction was guarded. While Ramli still needs time to hammer out specifics, parts of the plan are sure to draw fire inside and outside Indonesia. Ramli's highest priority is to revive the government's stalled privatization program. But he plans to ignore the International Monetary Fund's diktat that Jakarta focus first on selling off nationalized banks. "At this stage, the banks are just not that sexy," Ramli explains.

That decision is prompting concern at the IMF. At least 40% of all outstanding loans are nonperforming, making the banking sector Indonesia's most serious structural problem. Moreover, the government needs to sell assets to fill a $5 billion gap in the national budget. But even if Ramli wanted to sell the banks now, foreign investors have shown little interest.

Instead, Ramli will promote state-owned telecoms, hotels, and rubber and palm plantations. The first goal, he says, will be the restructuring of the telecom sector. The government has endlessly debated merging state-owned Indosat with domestic phone company Telkom or selling minority stakes. The aim is to boost efficiency and resume a project to install millions of new phone lines that has been stalled since 1997.

Ramli's solution is to sell a majority stake in Indosat to foreign investors. What's more, to ensure a fair bidding process, he also plans to set up Indonesia's first telecom regulator. "This comes as a big surprise," says Bertrand Bidaud, an analyst at high-tech consultant Gartner Group Inc. "If they do that, it will be seen very positively."

However, Ramli's plan to sell Indosat to foreigners is sure to infuriate nationalists--and could also become a battleground for legislators still smarting from Wahid's high-handed Cabinet reshuffle. Neither of the two largest political groups--Golkar, the former ruling party, and Megawati's Indonesian Democratic Party-Struggle--got a seat at the big table. And members of both parties will almost certainly be looking for payback.

Already, arrows are flying. On Aug. 28, the legislature voted to investigate allegations that, through his masseur, Wahid embezzled $5 million from Bulog, the agency Ramli still runs. Ramli says neither he nor Wahid were involved in any wrongdoing. But the probe shows how politics could bog him down as he wrestles with the economy, which is finally showing substantive signs of life.

Still, it is hard to imagine Ramli doing a worse job than Wahid and Kwik, both of whom had a knack for spooking foreign investors. When a delegation of American business leaders visited Wahid earlier this year, the blind President mistook them for Singaporeans and threatened to torpedo their submarines if they entered Indonesian waters, says an official who was there. When Kwik addressed Indonesian and Dutch business leaders in Amsterdam, he threatened to throw them in jail for graft. The hope is that Ramli will eschew empty threats and just get to work.


Bambang Yudhoyono looks perfectly at ease in a navy blue business suit. And the muscular ex-lieutenant general, once tapped to be Indonesia's next army chief of staff, insists he doesn't miss life in the barracks. "Now, I'm a true politician," he says, relaxing in an armchair in his official Cabinet Minister's residence.

Yudhoyono, 50, has hardly left the military behind. His new title is Coordinating Minister for Defense & Security. His role is critical to President Wahid's grand strategy to restore political stability to Indonesia and build a safe environment for foreign investors to do business and purchase Indonesian assets.

In a rare interview on Aug. 30, Yudhoyono told BUSINESS WEEK that "establishing a conducive climate with legal certainty and law and order" is his top priority. Yudhoyono intends to start by enlisting the army to combat fundamentalist Muslim militias in the Christian-majority Malukus and reach a peaceful settlement with rebels in the resource-rich provinces of Aceh and West Papua, which have unilaterally declared independence.

Judging from his track record, Yudhoyono is the best available choice to play intermediary between the government and the army. For years, he was responsible for ensuring that the military propped up the Suharto regime--both with armed might and political appointees. When Suharto was toppled in May, 1998, Yudhoyono inherited the difficult task of convincing commanders that a gradual withdrawal from day-to-day politics was in the national interest. Today, the number of parliamentary seats reserved for officers has been reduced from 100 to 38, and soldiers are required to resign from active duty before accepting a political appointment. "Bambang Yudhoyono is one of the few reform-minded officers in the military," says Endy Bayuni, a journalist and veteran observer of the military. "So he's highly regarded by civilians."

Now, Yudhoyono must convince commanders that their men will not be accused of war crimes if they cooperate in putting down the spreading violence. Ever since the National Human Rights Commission implicated senior generals for human-rights abuses in Aceh, Maluku, and West Papua earlier this year, says Yudhoyono, troops have become reluctant to intervene. In return for the generals' cooperation, he is negotiating a Javanese-style national reconciliation to clear some commanders of human-rights charges and press ahead with the prosecution of others. "The problem is not only to stop the fighting," says Yudhoyono, "but also to ask everybody to reconcile."

Yudhoyono knows that to restore the trust of the ethnic Chinese business community and investors from Hong Kong, Singapore, and Taiwan, the government needs to deal once and for all with continuing allegations that the military played a role in the anti-Chinese riots of 1998. If that is accomplished, says Yudhoyono, "I could assure everybody, including the Chinese residents of this country, that the government, the police, and the military will protect them without discrimination." As a former general himself, Yudhoyono will need to bring to bear all of his powers of persuasion.

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