Suharto's New Cabinet: No Dream Team to IMF

By Seth Mydans New York Times Service
JAKARTA - The shape of Indonesia's new cabinet is likely to set back hopes for vigorous implementation of reforms demanded by international lenders, as loyalty to President Suharto appears to predominate over fealty to mainstream economics

The names of the leading candidates, printed in newspapers here Friday, included longtime supporters and friends and suggested that the new finance minister would be less friendly to the International Monetary Fund than the man he was to replace.

The naming of the cabinet was the first test of Mr. Suharto's intentions as he enters new discussions with the Fund over the austerity measures it is demanding in return for continued disbursement of its $40 billion rescue package.

It coincided with the arrival here this weekend of a team of IMF officials, of Prime Minister Ryutaro Hashimoto of Japan and of the latest in a stream of American emissaries, David Lipton, a senior U.S. Treasury Department official. All are expected to urge Mr. Suharto to proceed with the economic liberalization to which he agreed in January.

Mr. Suharto, 76, was inaugurated Wednesday for a seventh five-year term amid assertions of nationalist solidarity in the face of what Indonesian officials now characterize as interference by the IMF and foreign governments.

The official stance was expressed by the military commander-in-chief, General Wiranto, who said Thursday: ''Reforms - political, legal and economic - should be constitutional, gradual and not done in a radical way.''

A leading Indonesian economist, Rizal Ramli, has characterized the Fund as ''an amputating doctor, not a healing doctor,'' whose medicine is sometimes so strong that it can kill the patient.

Mr. Suharto has made it clear that he hopes to continue to receive IMF funding but that urgent additional steps must be taken to strengthen the value of the Indonesian currency, the rupiah, which has sunk to less than 30 percent of its value six months ago.

''We're not asking for much,'' the president told supporters Thursday. ''We just want to have a stable rupiah so that people's living standards do not fall further.''

In what one foreign banker described as an attempt to have his cake and eat it, Mr. Suharto appears to hope to persuade the IMF to let him raise the value of the currency by artificially pegging it to the U.S. dollar through a currency board.

On Thursday in Washington, the Fund's managing director, Michel Camdessus, said such a move would be disastrous for Indonesia at this time.

''Why?'' he said. ''Because this country with its very limited stock of reserves now, with an extremely vulnerable banking system, with a corporate debt which has not yet been stabilized or rescheduled, cannot afford to manage a currency board.''

A week ago, the IMF said it would delay until at least next month the release of a second disbursement of $3 billion because of Indonesia's slow action on removing price supports, reforming the banking sector and disbanding monopolies and cartels.

That announcement drew a chorus of nationalist indignation from officials here, along with a suggestion by Mr. Suharto that the liberalized economy he had agreed to would run counter to the Indonesian ethic of family relationships and government controls.

Mr. Suharto has resisted outside pressure, first by naming his friend B.J. Habibie as vice president, despite objections abroad that he represents that very ethic, and now by naming a cabinet that is not dominated by economic technocrats.

''The crisis is more political than it is economic in character,'' Mark Brown, a vice president of the World Bank, said Tuesday.

''This is a test of wills between President Suharto and domestic and international markets.''

In a report on Indonesia this week, Jardine Fleming painted a bleak picture of the country's economic prospects and its will to take strong measures.

''The operative word for the Indonesian policymakers is 'confusion' and the situation in Indonesia continues to worsen,'' the report said. ''The banking system is dead and there is hardly any borrowing/lending taking place and distribution networks are falling apart.''

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