It has been a challenging year for Susilo Bambang Yudhoyono, who became Indonesia's first directly elected President last October. In December his government had to cope with the aftermath of the devastating Indian Ocean tsunami. In recent months he has faced warnings from international organizations that bird flu, which has killed a handful of Indonesians, could hit his nation of 220 million hard. And soaring oil prices have put heavy pressure on government finances, thanks to expensive fuel subsidies.
The suicide bombings at the resort area of Bali on Oct. 1, which killed 22 and wounded more than 90, appeared to be another blow. The bombings were the first terror attacks since the former general took office, and they came at a tense time. Hours earlier, Yudhoyono had finally put into force controversial cuts in fuel subsidies and 100%-plus price rises on goods such as gasoline and kerosene. Yudhoyono had feared that the move would spur protests like those that led to Suharto's ouster when he raised prices in 1998.
A Shift in Focus
Ironically, the bombings may be helping Yudhoyono by distracting Indonesians. The President rushed to Bali, vowing to intensify his campaign against extremism. The bombings take "the limelight away from protests," says Sidney Jones, Southeast Asia project director for International Crisis Group.
Indeed, in the days just before and after Oct. 1, only small protests broke out. The largest, in Jakarta, numbered 3,000, far smaller than in earlier years. "This government has sold its policies better," adds Jones.
Yudhoyono's bold, if delayed, reform is winning high marks from economists. He "made up for past criticism of acting too slowly on fuel subsidies by delivering a larger-than-expected hike in prices," says Euben Paracuelles, an economist for DBS Bank in Singapore. By cutting the subsidies from $14 billion to about $4 billion, the government is expected to keep its budget deficit to 1% of gross domestic product this year. That includes monthly payments of $10 to be offered to Indonesia's poorest families to ease the pain of higher prices.
The markets are taking developments in stride. Rather than plunging, the Jakarta stock market rose 1.1% from Sept. 30 to Oct. 5, and the rupiah strengthened 1.5% against the U.S. dollar. Since hitting a four-year low on Aug. 30, the rupiah has risen 18%. To curb inflation, Bank Indonesia just lifted interest rates 100 basis points, to 11%. "Markets have taken the view that the government is doing everything it can against terrorism and to cut subsidies," says Robert Adair, head of research at Jakarta brokerage CIMB-GK Goh. Encouraged, the Finance Ministry sold a $1.5 billion international bond issue on Oct. 5.
But the good feelings won't last unless Yudhoyono keeps moving on both the economy and security. Critics fault Jakarta for failing to arrest two Malaysian-born terrorist suspects believed to be behind the latest Bali incident and other bombings since the bigger Bali attack in 2002. Critics also think the government should put a stop to recruiting by extremists. "Terrorism is very high on the President's agenda, and the government has arrested dozens of extremists and terrorists," replies presidential spokesman Dino Patti Jalal. Despite all the problems, Yudhoyono enjoys a 50%-plus approval rating. He'll have to juggle wide-ranging demands to keep it that way.
By Assif Shameen in Singapore
Edited by Rose Brady