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    Southeast Asia
     Jan 28, 2008
Economic upside - and downside
By Tom McCawley

JAKARTA - As Indonesians debate Suharto's legacy - he died on Sunday - some will undoubtedly place his New Order government's undisputed economic accomplishments above and beyond the unresolved charges of embezzlement and human rights abuses that followed the former strongman leader to his grave.

Editorial pages have been full of letters, alternatively praising and condemning the former president. The critical missives concentrate on criminal corruption charges, dropped on January 8 after his hospitalization, where the attorney general has accused Suharto of embezzling more than US$1 billion through a charitable foundation during his rule. A civil case is still pending.

Many others have hailed the economic stability and prosperity his government ushered in, beginning with stabilization of runaway inflation in 1966, roaring economic growth through the 1970s, 1980s and early 1990s, and ending in 1998 with the sharp economic collapse that coincided with the 1997-98 Asian financial crisis and marked the end of his 32-year rule.

Suharto, an independence fighter and later Cold War warrior against the spread of communism, perhaps more significantly is credited as the chief architect of Indonesia's extraordinary economic boom, which saw average gross domestic product (GDP) growth of 7% for over three decades.

It was as an army commander, where he was responsible for putting down regional insurrections, running intelligence networks and also doing business deals, that Suharto's ideas on leadership were formed.

On taking power after a still controversial coup attempt in the mid-1960s, Suharto restored economic ties with the West, opened the economy to foreign investment and set up a series of five-year development plans with economic growth targets. Turning his back on the anti-Western rhetoric of his left-leaning predecessor Sukarno, Suharto welcomed Western investors and liberalized investment rules to encourage capital inflows.

Perhaps most importantly he appointed a brain trust of mostly US-trained economic advisors, the so-called "Berkeley Mafia", as several had PhDs in economics from the US university, to lead his economic reform program. "In the 1960s, he quickly learned economics and was an excellent crisis manager," said Mohammad Sadli, a former minister and economic advisor under Suharto. "He laid the foundations of prosperity."

Sadli and other economic advisors liked to tell the story of Suharto listening patiently, taking notes of their explanations of economic theory, rice production and industrialization. In return, he largely insulated the technocrats from outside political pressures. The market-minded technocrats aggressively shifted the levers of monetary policy to bring the country's 600% hyperinflation rate of 1964-65 under control. Drawing on classical economic theories, the technocrats laid the regulatory foundations for the three-decade economic boom.

Suharto referred constantly in speeches to his New Order regime's economic development achievements. Indonesia's per capita income rose from $50 in 1967 to $650 in 1996, two years before the authoritarian leader's downfall. Adult illiteracy rates were cut by two-thirds over the same period, while life expectancy rates increased by a whopping 20 years.

Agricultural experts gave the early Suharto regime high marks for boosting food production, particularly through the introduction of so-called "green revolution" technologies including higher-yielding varieties of rice. Some subsequently criticized his government's full-embrace of the Western-hatched techniques, arguing they often disrupted local social structures and had a negative environmental impact. Yet food security, particularly for the key commodity of rice, improved significantly.

Indonesia was also hailed as a global success in the area of family planning, reducing the population growth rate from high levels in the 1960s, to about 2% by the mid-1990s. Suharto often claimed this was the result of his government's two-children only family planning program while academic demographers such as Terry Hull of the Australian National University judged that the country's fast growing economy made it less attractive for women to bear large families.

All in the family

Still, critical political economists claim that the economic policies of the New Order benefited mostly-ethnic Chinese conglomerates, nearly all of which were beholden to Suharto for government concessions and patronage. Although representative of only 2% to 3% of the population, ethnic Chinese businessmen reportedly own as much as 80% of the national wealth. That disparity sparked ethnic-based resentments, which exploded to the fore during the 1998 pogroms against Chinese shop owners in Jakarta and other cities and still simmer 10 years later.

One key Suharto ally, Ibnu Sutowo, founded the state oil and gas company Pertamina in 1968, which to many observers was a symbol of the freewheeling patronage that dominated the New Order administration. Oil revenues were critical to Indonesia's initial economic turnaround under Suharto and the country quickly became a new frontier for regional oil production, blessed with shallow offshore oil-and-gas fields and newfound political stability.

Pertamina is credited with pioneering the production-sharing contract (PSC), an arrangement similar to sharecropping, where the state is paid in oil rather than a percentage of profits, and from 1968-1974, oil production increased by over 1,000%, with oil revenues at the time providing up to 80% of the state budget. The PSC gave huge discretion to Pertamina and Ibnu Sutowo became a major patron of the early New Order, funding schools, mosques, government departments and even Indonesia's national parliament building.

By 1975, however, Sutowo's overspending on a shipping empire and the company's breakneck expansion had racked up $10 billion in debt and to many critics the company's chronic corruption became a glaring symbol of Suharto's over-reliance on patronage. Some economists, such as Hal Hill of the Australian National University, credit the Suharto government with investing some of those oil revenues wisely.

Indeed, under the Berkeley Mafia's management, Indonesia began a series of five-year economic plans in the late 1960s, including extensive spending on roads, schools, hospitals, and agriculture. By the mid-1980s, development agencies such as the World Bank held up Indonesia as a showcase success story.

Major General Suharto was little-known to the West when he emerged as a fiercely anti-communist president in 1966. After an alleged coup attempt by the Indonesian communist party, between some 300,000 to 1 million alleged communists and their supporters died in reprisals at the hands of the military and religious youth groups.

Historians still debate Suharto's role in the massacres that one US Central Intelligence Agency report described as "one of the worst mass murders of the 20th century". Critics say Suharto failed to develop legal institutions and ruled through corruption and nepotism. Suharto's friends, associates, and especially five children developed sprawling business empires, reaching into every sector of the Indonesian economy.

Critics, such as Jeffrey Winters, a professor of political economy at Northwestern University in the US, claim that Suharto ran Indonesia in the style of a mafia don. Winters argues that the systemic corruption of the regime finally eroded foreign investor confidence to the point of collapse, when in 1998 the rupiah came unhinged and the financial system decimated under the weight of foreign-denominated debts.

Economic growth collapsed to -14% in 1998, down from 7% the previous year, and the country unceremoniously signed onto a $43 billion International Monetary Fund bailout package. Student protestors at Indonesia's Parliament building squarely blamed Suharto, his business associates and family members, and eventually drove him from power, partially on the charge of economic mismanagement.

Suharto's greatest failing to many of his supporters, was the legacy of corruption. His business wheelings and dealings first came to light in the 1950s, when as an army official he was reprimanded over a sugar-smuggling scheme in Central Java. Throughout his rule, he cultivated a network of wealthy allies, many in the ethnic Chinese business community through a system of rewards and punishments administered by the state.

Relations with a key supporter and former intelligence czar Benny Moerdani soured in the 1980s, after a warning he issued to Suharto that his children's business activities were running wild. By the mid-1990s, Suharto's nepotism reached epic proportions, culminating in a national car project awarded to Suharto's youngest and most beloved son, Tommy. According to anti-corruption watchdog Transparency International, a financial watchdog, Suharto and his family may have amassed as much as $35 billion during his reign and the independent organization today still ranks Indonesia as one of Asia's most corrupt countries.

Others debate that historical interpretation, however. Visiting Suharto's deathbed, former Singaporean prime minister Lee Kuan Yew offered another verdict when he compared the well-being of Indonesian citizens to those of Myanmar. "Compare. Who's better off?" he was quoted as saying. "Who deserves to be honored? What's a few billion dollars lost in bad excesses. He built hundred of billions of dollars worth of assets."

In Lee's case, such statements are at least partially self-serving, as one day Singaporeans will likewise have to judge his authoritarian government's economic legacy. For Suharto, it seems highly unlikely such questions will ever be resolved through a formal legal process. His family rejected an out-of-court settlement offer from the attorney general's office earlier this month and some Indonesians, including former political opponents and other victims of his rule, have called for forgiveness.

In the end, however, Indonesians, foreign observers and historians will have to make up their own minds on the former strongman's legacy.

Tom McCawley is a Jakarta-based journalist.

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