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On the Record

Suharto’s Legacy and the Future of Indonesia

Lex Rieffel


Q. Suharto, the President of Indonesia from 1968 to 1998 died on January 27 at the age of 86. Was Suharto himself responsible for rapid economic growth during his 30 years in power? Where does Indonesia’s economy stand today?

A. Suharto made a strategic choice soon after he took control of the government that was both surprising and courageous: he delegated responsibility for formulating and implementing economic policies to a group of US-trained “technocrats”. Nothing in Suharto’s background as a military officer from a modest family explains why he made this choice. It was courageous because it gave unprecedented power to three key institutions: the central bank (monetary policy), the finance ministry (tax policy), and the planning ministry (expenditure policy). In other words, the technocrats get the credit for the smart policy choices, but Suharto gets credit for empowering the technocrats and then protecting them against substantial pressures to reverse or weaken these policies.

Indonesia’s economy is muddling along. It could be a lot worse; it could be a lot better. Macroeconomic management has been quite good: inflation under control, small budget deficit, growing foreign exchange reserves. A set of important reforms, however, is stuck either in the bureaucracy or in the parliament. As a consequence, the level of investment is too low, GDP growth is limited to 5-6 percent per annum, and the amount of job creation is not keeping pace with population growth. A recent concern is that macroeconomic policies will weaken as campaigning begins for the parliamentary and presidential elections in the first half of 2009.

Q. Suharto has been accused of massive corruption. Transparency International estimated his improperly acquired wealth to be as much as $35 billion. Do these corruption charges continue to hang over Suharto and Indonesia more broadly?

A. Corruption was massive toward the end of the Suharto era, but the $35 billion figure has an arbitrariness that contributes more emotion than clarity to the matter. Many if not most of the big deals were made by Suharto’s ministers, his staff, his business cronies, and his family members, not by Suharto personally. Friends and family members paying tribute to Suharto after his death are claiming that he was untainted by corruption, but these claims are not credible. Meanwhile, the current government is pursuing civil charges against Suharto to recover “stolen assets”. How this issue plays out over the next year could be a determining factor in Indonesia’s economic and political future. Suharto’s death could remove a big obstacle to reducing the corrupt practices that remain at epidemic proportions in Indonesia and represent an enormous impediment to productive investment and efficient delivery of public services. Or his death could trigger an emotional response that effectively blinds the country to the problem of corruption for another generation.

Q. Suharto has also been accused of committing or condoning gross human rights abuses and murdering more than a million political opponents. Since 1998 when he was forced to resign, however, there has been little accountability for these crimes. Will his death now make it possible to learn who was responsible and bring them to justice?

A. The political will within Indonesia to tackle this issue is weak. Suharto’s death may remove one substantial obstacle, but the people who have the most to lose from a serious inquiry continue to have considerable power. Furthermore, most Indonesians now are more concerned about the abuses of power they see every day than the abuses of the past. In addition, like the $35 billion figure for Suharto’s ill-gotten wealth, the large figures given by some commentators for the number of people he killed are probably exaggerated. Thousands of Indonesians have committed atrocities over the past 40 years for their own reasons, not on Suharto’s orders. He may not have had sufficient power to stop some of the worst atrocities, especially the massive bloodletting following the abortive coup in 1965. It is possible that Suharto’s death will open the door to a serious “truth and reconciliation” effort, but the approaching elections will add to the odds against this outcome.

Q. What is Suharto’s most important legacy to Indonesia?

Author

A. The high degree of nostalgia for Suharto that exists in Indonesia today is directly linked to the rapid improvement in standards of living experienced almost universally in this large country—the fourth most populous in the world—between 1968 and 1998. Apart from this there is almost nothing: no great military victories, no inspiring vision, no charisma. He was the polar opposite of his predecessor Soekarno. It remains to be seen whether Indonesians embrace as his legacy the economic growth he fostered or the corruption he allowed to spread into every nook and cranny of the society.

Q. What are the most critical challenges facing Indonesia today?

A. Making democracy work is the overriding challenge today. The public commitment to a democratic system is impressive. The constitutional and institutional reforms undertaken since 1998 are astonishing, including what may be the most far-reaching decentralization of government authority anywhere in the world in modern times. The framework is there but the behavior lags. The kind of “level playing field” that allows individuals in high-growth economies to benefit from their own efforts does not exist. Too many transactions still involve an arranged “deal”, from school fees to public sector employment to telecommunications licenses. Furthermore, Indonesia’s rich natural resource heritage is more of a curse than a blessing because so much of its value is being captured by the rich and powerful instead of being managed for the benefit of the less-privileged majority and future generations.

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