At the height
of the Indonesian financial crisis in 1997-98, Mr Lee Kuan Yew met two of
President Suharto's daughters in Singapore, Siti Hardiyanti Rukmana (Tutut) and
Siti Hediati Hariyadi Prabowo (Titiek), on two separate occasions, to try to get
them to understand the gravity of the situation. But they were in vain, and
Suharto was forced to resign shortly.
Crisis talks with Suharto's
daughters
NO ONE expected the Indonesian rupiah crisis. When the Thai central bank
stopped defending the Thai baht on July 2, 1997, the contagion spread to all
currencies of the region as panic swept fund managers into a sellout of the
region's shares and currencies.
Wisely, the Indonesian finance minister called upon the International
Monetary Fund (IMF) for help.
Before he settled with the IMF at the end of October 1997, President Suharto,
through an emissary, asked Prime Minister Goh for support to improve his
bargaining position with the IMF.
Goh discussed this with Finance Minister Richard Hu and me before taking it
to the Cabinet. We were fairly confident that the Indonesian economy was in
better health than Thailand's. They had no big deficits either in their current
account or budget, a modest reported foreign debt and low inflation. So we
agreed to support them up to US$5 billion (S$8.5 billion), but only after
Indonesia had exhausted some US$20 billion of loans from the IMF, the World
Bank, the Asian Development Bank and their own reserves.
Singapore also promised to intervene in the foreign- exchange market to
support the rupiah once Indonesia had reached agreement with the IMF. The IMF
package for Indonesia amounted to US$40 billion. Japan also agreed to support
Indonesia up to US$5 billion.
Immediately after the agreement with the IMF was signed, the central banks of
Indonesia, Japan and Singapore, working in consultation, intervened to raise the
value of the rupiah from 3,600 to 3,200 to the US dollar. Before the crisis, the
rupiah had been 2,500 to the US dollar. This improvement was undermined when
President Suharto reinstated some of the 14 major infrastructure projects that
had been cancelled as agreed with the IMF.
They included a power station in which his eldest daughter, Siti Hardiyanti
Rukmana (Tutut), had an interest. Also, one of the 16 insolvent banks that had
been closed (it was owned by the president's son) was allowed to be revived
under a different name.
The market reacted by selling off the rupiah.
These 16 banks were only a small part of a much larger problem: there were
over 200 banks, many of them small, poorly managed and inadequately supervised.
Further, contrary to the agreement with the IMF, the monetary policy was eased.
To add to the loss of confidence, the president of the Indonesian Chamber of
Commerce announced that President Suharto had agreed to use the US$5-billion
fund from Singapore to make low-interest loans available to indigenous companies
suffering from the credit squeeze.
Worse, Suharto became unwell in December 1997 after the exhaustion of his
overseas travels.
Alarmed at the rapid decline of the value of the rupiah, I told our
ambassador in Jakarta to ask Tutut if she could meet me in Singapore to convey
my views to her father. I had last seen her in June 1997 when I called on her
father in Jakarta. Prime Minister Goh and I met her in Singapore at the Istana
Villa on Christmas Day, 1997. We explained the grave situation for Indonesia if
confidence was not restored, first in her father's health and next in his
willingness to implement the IMF conditions.
I strongly urged her and her siblings to understand that international fund
managers in Jakarta had focused on the economic privileges the president's
children were enjoying; during this period of crisis, it was best if they
withdrew completely from the market and did not engage in any new projects.
I asked her point-blank whether she could get this message understood by her
siblings. She answered with equal frankness that she could not. To make sure she
understood the implications of market analysts' daily reports, I sent her
through our ambassador in Jakarta a copy of the daily collection of important
reports. To judge from the actions of the Suharto children, it had no effect on
them. On Jan 6, 1998, President Suharto delivered the Indonesian budget, which
had not been discussed with the IMF and did not meet targets earlier agreed in
the IMF package.
In the next two days the Indonesian rupiah dropped from 7,500 to 10,000 to
the US dollar because both the IMF deputy managing director, Stanley Fischer,
and the US deputy secretary for the treasury, Lawrence Summers, had criticised
the budget as not being in accordance with the IMF terms.
At 9 pm on Jan 8, I heard over the radio that in a frenzy of panic buying,
crowds in Jakarta had cleaned out all shops and supermarkets to get rid of their
melting rupiah and to stock up. I phoned our ambassador in Jakarta who confirmed
the news, adding that a supermarket had been burnt down, and the rupiah was
trading in the streets at a low of 11,500 to the US dollar.
I alerted Prime Minister Goh, who immediately sent a message to the US State
Department and the IMF, suggesting that they issue statements to restore calm in
the markets or risk disorder the following day. A few hours later, at 7 am
Singapore time, President Clinton phoned Prime Minister Goh to discuss the
latest situation and then spoke to President Suharto.
Clinton announced that he was sending Summers to help sort out the problems.
Meanwhile, Fischer issued a statement that the reaction was excessive. This
flurry of activity held out hopes of a possible solution and stopped what would
have ended in riots and disorder. On Jan 15, President Suharto himself signed a
second IMF package stipulating more reforms.
On Jan 9,1998, a few days before that second agreement, Suharto's second
daughter, Siti Hediati Hariyadi Prabowo (Titiek), the wife of Major-General
Prabowo Subianto, commander of Kopassus (their red beret forces for special
operations), saw me in Singapore.
She came with her father's knowledge; she wanted our help to raise US dollar
bonds in Singapore. An international banker had said the dollars raised would
help stabilise the rupiah. I said that in the present crisis atmosphere, when
the market had doubts about the rupiah, the failure of a bond issue would cause
a further loss of confidence. Then she complained of rumours from Singapore that
had weakened the rupiah, and added that our bankers were encouraging Indonesians
to park their money here. Could we stop it?
I explained that this would be totally ineffective since Indonesians could
get their money out of Indonesia to anywhere in the world by a touch of the
computer key. Moreover, rumours could not affect the rupiah if the fundamentals
were strong.
To restore market confidence, her father had to be seen to implement the IMF
reforms. If he felt that some conditions were impractical or too harsh, then he
could invite a person like Paul Volcker, the former US Federal Reserve chairman,
to be their adviser. The IMF was likely to listen seriously to arguments from
Volcker. That message got through - a banker told me later that Volcker did go
to Jakarta, but after meeting Suharto, left without becoming an adviser.
Suharto's problems had been compounded by the increasing intrusion of his
children into all lucrative contracts and monopolies. The IMF targeted several
of them for dismantling, including the clove monopoly and a national car
monopoly run by his son Tommy, the power station contract to his daughter Tutut,
and banking licences to other sons, to name just a few. Suharto could not
understand why the IMF wanted to interfere with his internal affairs.
In fact, these monopolies and concessions had become major issues with the
fund managers. Also, his top technocrats saw Indonesia's financial crisis as an
opportunity to dismantle practices that had weakened the economy and increased
dissatisfaction.
Most of all, the IMF was aware that the US Congress would not vote for more
funds to replenish its coffers if it did not stop these practices. The crucial
factor that affected the outcome was America's view, which Summers expressed to
my prime minister and me on Jan 11, 1998 in Singapore, on his way to Indonesia.
What was needed, he said, was a "discontinuity" in the way Suharto conducted
his government. The privileges for his family and friends had to stop. There
should be a level playing field. I pointed out that it was best to have
continuity for no successor president could be as strong as Suharto to enforce
the tough conditions the IMF required. So we should help Suharto implement IMF
conditions and work towards the optimum outcome, namely get the president to
appoint a vice-president who would restore the confidence of the market in the
future of post-Suharto Indonesia.
This view was not shared by the Clinton administration. They were adamant on
the need for democracy and an end to corruption and human rights violations. The
Cold War was over. They saw no reason to "mollycoddle" Suharto (Clinton's words
in his 1992 campaign). Two months later, in March 1998, former US Vice-President
Walter Mondale carried a message from Clinton to Suharto.
He then met Prime Minister Goh and me in Singapore on his way home. After
comparing notes on Suharto's likely course of action on reforms, Mondale tossed
this question at me: "You knew Marcos. Was he a hero or a crook? How does
Suharto compare to Marcos? Is Suharto a patriot or a crook?"
I felt Mondale was making up his mind on Suharto's motivations before
submitting his recommendations to his president. I answered that Marcos might
have started off as a hero but ended up as a crook. Suharto was different. His
heroes were not Washington or Jefferson or Madison, but the sultans of Solo in
central Java.
Suharto's wife had been a minor princess of that royal family.
As the president of Indonesia, he was a mega-sultan of a mega-country.
Suharto believed his children were entitled to be as privileged as the princes
and princesses of the sultans of Solo. He did not feel any embarrassment at
giving them these privileges, because it was his right as a mega-sultan. He saw
himself as a patriot.
I would not classify Suharto as a crook.
