FORBES GLOBAL February 22, 1999

Meet leading Indonesian presidential candidate Amien Rais, a populist who's also talking up the virtues of currency boards.

Adam Smith in Jakarta

By Monica Showalter

On current plans, Indonesia will choose a new president in November. The current front-runner in the opinion polls is Amien Rais, a 54-year-old political science professor and populist who can fill a stadium with fiery, often acid oratory. He led Indonesia's reformasi movement last May, denouncing corruption and helping topple President Suharto after 32 years in power.

Surprisingly for a populist, Amien comes across as a liberal in his approach to fixing Indonesia's economy. Although he has yet to announce a detailed economic platform, he clearly favors the currency board approach to stabilizing Indonesia's battered rupiah and creating the confidence Indonesians and foreign investors alike need to begin to invest there again. "I'm not an economist, but I believe it [a currency board] is the right thing to do," Amien tells FORBES GLOBAL.

With currency boards, countries give up discretionary monetary policy and make their currencies freely convertible into a hard reserve currency like the dollar at a rigidly fixed rate. Amien says he is impressed by currency boards' records in fending off speculative attacks. "We don't want to be a puppet of speculators and external economic forces," he says.

Amien talked to FORBES GLOBAL about his political and economic views early one morning at his office overlooking the red tile roofs and bougainvillea trellises of the central Menteng district of Jakarta. He was clad in a T shirt emblazoned with the letters PAN, the acronym for his National Mandate Party.

"The classical system of Adam Smith has been proved right," Amien says. "What we witnessed a few years back [with the collapse of the Soviet Union] was the bankruptcy of the planned economy. If you lack market forces, you will have stagnation. And people will not benefit."

Amien earned his Ph.D. in political science in 1981 from the University of Chicago, whose free-market-oriented economists have played key roles in reviving economies from Britain to Chile. Amien regards Chicago as his second home, a place he loves to revisit because "no one knows who I am."

In Indonesia, Amien's narrow lead in two Indonesian opinion polls last December hardly means that he has the presidential election sewn up. But the size of the crowds Amien attracts on his whistle-stop tours around the country is the real thing. With a little shudder, Amien describes a presidential campaign trail filled with crowds of people who jump onto the stage and pluck at his clothes as though he were a rock star.

Much of his appeal is derived from his frontline stand against Suharto. Yet Amien's support for a currency board echoes Suharto's. After the rupiah fell through the floor in 1998, Suharto brought currency board expert (and FORBES GLOBAL columnist) Steve Hanke in to advise on setting up a board but was forced to drop the idea under pressure from the International Monetary Fund. (Hanke has sent Amien his book Currency Boards for Developing Countries.)

Amien shares Suharto's icy ambivalence toward the IMF, too. "The IMF is a necessary evil, "he says. "It's a necessity that we take the [$43 billion] IMF aid. But the IMF's intentions do not exactly click with the needs of the people. I can get along with the IMF as long as the IMF takes no stupid action."

The Habibie government believes that it has put the country on the track to economic recovery by adhering to Indonesia's IMF-led reform package. But the capital market isn't convinced: The rupiah has weakened from 8,000 to the dollar to 9,000 since the collapse of the Brazilian currency in January, Indonesian interest rates are at 38% and inflation is rising.

Amien's top adviser, Faisal Basri, a respected economist at the University of Indonesia in Jakarta, says the Habibie/IMF reforms are too shallow. "We can't see any real improvement from the IMF program, "he says, rejecting as simplistic the current government's efforts to curb Indonesia's numerous monopolies by restricting any single company's market share to 30%. Faisal: "We can't divide the global and domestic market. How can a government restrict one company to a maximum market share when we have globalization right now?" Ending monopolies and providing small and medium-size businesses better access to capital could be better accomplished by opening Indonesia's markets to foreign competition, Faisal contends.

Faisal, who is also secretary-general of PAN, agrees that tax cuts are needed to attract overseas investors. But that won't be enough by itself. A survey of foreign investors, conducted in January by an Australia-based Indonesian consultancy, concluded that social unrest, unrealistic government forecasts and falling confidence in the government are chasing away new investment. Amien nods. "Monetary stability depends on political stability, "he says, "and I would add that political stability depends on the wisdom of a country's political leaders."

To call the Indonesian situation fluid is a grand understatement. The world's fourth-largest country, Indonesia (pop. 206 million) is now ruled by Suharto's unpopular protégé, B.J. Habibie. The economy shrank by 15% last year and will contract 4% in 1999. Poverty stalks the land. Uprisings have been reported in Sumatra and the Moluccas. East Timor is on the verge of civil war. The election could be canceled. The army might stage a coup. But if (reasonably honest) elections are held in November, Amien could very well win.

Given all the uncertainties, Indonesia's business community is understandably cautious about endorsing any particular presidential candidate. Prominent businesspeople are not enthusiastic about Amien's championing of small, indigenous enterprises nor his plans to break down the power of local monopolies by opening the economy to foreign investors. "How will you grow the economy if you do not deal with big companies?" demands Sugeng Sarjati, chairman of the $30 million (revenues) services and entertainment conglomerate PT Kodel, based in Jakarta.

Still, Sugeng says he's inclined to support Amien: "He's got a better base to be a good leader because he is American-educated, he has a global sense and he is much more open to ideas."

Among Amien's rivals is Megawati Sukarnoputri, of the Indonesian Democracy Party-Struggle, popular with the urban poor and ethnic Chinese—she is the daughter of Sukarno, Indonesia's first president. The other two leaders are Abdurrahman Wahid of the National Awakening Party, which has a strong rural base; and President Habibie, whose governing Golkar party has the support of the army and the bureaucracy.

Supporting Amien are many middle-class Indonesians and students and the 28-million (claimed) strong Muhammadiyah organization, an Islamic group he led until August before stepping down to campaign. (This support is a two-edged sword. Explains R. William Liddle, a political scientist and Indonesia specialist at Ohio State University: "He is trying to create a nonreligious party with a religious base.")

None of the dozens of new political parties seeking representation in the June parliamentary elections will win an outright majority, so success will depend on political alliances. Rumors abound in Jakarta that Amien and Abdurrahman, an old Islamic rival, may be in preliminary talks on an alliance.

Money? Here Amien appears to be lagging behind. "Amien has not been able to attract campaign money, as Megawati has," says Bambang Harymurti, deputy editor of Tempo magazine in Jakarta. But, Harymurti adds, "if he does a lot of one-on-one meetings, he has a strong way of convincing people." Adam Smith may yet play in Jakarta.

From February 22, 1999 Issue



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