Political uncertainty in Indonesia leads to short-term jitters

15th August 1996

Recent riots in Jakarta which led to 4 dead and many injured have been down-played by government officials yet foreign business is taking a "wait and see" attitude in Indonesia. The riots were confined to a small part of Jakarta. Long term prospects are very sound but short term, many business people are concerned.

Old habits die hard and despite the collapse of major left wing governments worldwide in recent times, government spokesmen are still raising the communist bogey. Accusations were made that ringleaders were trained up by leftist sections of the largely centrist Australian Labor Party and appeals were made to the public to consider developments as communist instigated. However recent rumors on the health of Asia-Inc's most powerful man, President Soeharto, though it was subsequently reported that he has a clean bill of health, has only added to the uncertainty. Soeharto has ruled Indonesia for many years with an iron fist and it is testament to the hold of the Soeharto "dynasty" on politics and government in Indonesia that such rumors have had a significant effect.

Director of the Centre of Strategic and International Studies, Hadi Susastro, reported that the economic outlook was "gloomy", with recent events only compounding it. Though foreign investment was continuing to grow healthily, signs of a slowdown are apparent, and investors are moving to short term investments and project postponements.

It is still unknown whether Soeharto will run for his seventh five year term in the 1988 elections, and succession plans are very hazy.