Notes on an Indonesian Dictator’s Downfall

One of the most important chapters in Indonesia’s history was written in May 1998, when nationwide protests demanded President Suharto step down from office.

Students and intellectuals overran the parliament building. Elsewhere in Jakarta, there were violent riots, rampant looting and clashes between security forces and students. At some places, angry mobs attacked military and police officers. Elsewhere, there were mass rapes and murderous violence targeting the ethnic Chinese community.

The situation marked the end of Suharto’s 32 years of dictatorship. “People power” triumphed, setting a new course for the nation to embark on an era of reforms: reformasi .

Many factors contributed to Suharto’s downfall — the Asian financial crisis, the shooting of university students, calls for freedom of expression and the power of the media. But the first sign that Suharto really would step down came on the night of May 20, when US Secretary of State Madeleine Albright called upon the president to resign and roll out a democratic transition plan. Prominent media pioneer Peter F. Gontha, the Jakarta Globe group publisher, broke the story, sharing it with journalists that night.

It would be naive to believe there was no connection between Albright’s call and Suharto’s resignation. The next morning, on May 21, 1998, Suharto transferred formal authority to his vice president, B.J. Habibie.

Indonesia had long been under the dictates of the International Monetary Fund. But Suharto toward the end of his reign failed to implement the economic prescriptions demanded by the IMF. Four months earlier IMF director Michel Camdessus stood over Suharto with his arms folded in true colonial style and witnessed Suharto sign a new letter of intent bowing to IMF demands.

Earlier, Suharto tried to overcome economic problems by methods including exploring the idea of pegging the rupiah to the US dollar, an idea presented by leading US academic Steve Hanke. But the efforts were too late.

Since the signing of that letter of intent, Indonesia had been deprived of its economic and monetary sovereignty, some pundits claim.

But what exactly was stipulated in the letter of intent of Jan. 15, 1998? Among other things, Indonesia had to re-formulate its central bank law under an IMF prescription, leading to Law No. 23 of 1999. In Article V, Section 1 of the letter of intent, the IMF demanded full autonomy for the central bank. That included a requirement that Indonesia must follow IMF rules including freer foreign exchange, a need to report natural resources reserves, production and exports, and detailed balance of trade statements.

The IMF also demanded that Indonesia revoke limitations on foreign ownership of banks. As a result, even now, foreign-dominated banks control Indonesian banking. Meanwhile, Indonesia’s state-owned enterprises were required to divest to make way for foreign investment. For example, Indonesia lost control of strategic telecommunications company Indosat. In short, the IMF dictated Indonesia’s economic policies.

As many historians have noted, Suharto’s rule relied on US support. Prominent US writer Noam Chomsky wrote in his article “Indonesia, Master Card in Washington’s Hand” that Suharto had been a favorite son of Western governments and investors since he took power in 1965.

To sustain his power and violence, the White House long nurtured Suharto for the sake of US interests. The World Bank made sure Indonesia favored Western governments and corporations.

Indonesia posted 7 percent annual economic growth under Suharto. Despite these achievements, things suddenly went wrong for Suharto. His fall from grace was due to disobedience to the IMF and his inability to subdue popular opposition, which made it clear that his usefulness to US interests had come to an end. By Yanto Soegiarto managing editor of Globe Asia, a sister publication of the Jakarta Globe.