In business as in politics, Indonesia is ruled by a tiny elite. Ninety-five percent of the country's huge private foreign debt of US$80 billion, according to independent economist Kwik Kian Gie, is owed by just 50 wealthy individuals. In January the rupiah fell to a quarter of its old value against the US dollar. This meant that, when converted to rupiah, their foreign debts just became four times larger. The economic slump that went with the exchange rate shock often caused their income to plummet as well. They were simply unable to pay even the interest on their loans.

Few among Indonesia's 200 million shed tears over the pain these 50 individuals were suffering. To be super-wealthy, and to have political connections to thank for your wealth, is to be on the wrong side of a strong egalitarian tradition in Indonesia that goes back to the revolution of 1945. Will the present upheaval bring about a less elitist system? Who knows. It would be an unusual revolution, triggered by the global market rather than by the Indonesian people.

Friendly

Indonesia has experienced high economic growth almost without interruption since the beginning of Suharto's New Order in 1966. All the so-called macro- economic indicators emerged from the house of horrors of the mid-1960s and stayed friendly for decades. Growth of around 7% a year, inflation below 10%, a currency exchange rate that slipped against the US dollar at a slow, controlled speed of around 5% a year, healthy reserves of foreign cash, strong export growth. You name it, the economists were happy with it.

Then in May 1997 global speculators attacked the Thai currency, and to their delight it collapsed. By July, they had also gone to work on the Philippine, Malaysian, and finally the Indonesian currency, all with great success. National banks fought back at a cost of billions of dollars, but in vain. On 14 August Indonesia abandoned the managed exchange rate. Under attack it had slipped from Rp 2,400 to the US dollar to Rp 2,640. Once floated, it fell to nearly Rp 2,800. At the time, these seemed like major falls.

To save precious foreign reserves, Indonesia's government said in September it was putting on hold 15 mega-projects in the 1997/98 budget. They ranged from toll roads to power plants and often belonged to the president's children. But the huge cancellation was not only bad for the superwealthy. It signified a slowdown that, some economists said, had already forced Indonesia into recession.

The International Monetary Fund had almost slipped into obscurity. It now found a dramatic new lease of life. In August it announced a big rescue package for Thailand. By October, the Hong Kong stock market had taken sharp drops, and the South Korean currency was also in a shambles. Everyone except Malaysia's Mahathir, who preferred to talk national dignity, seemed to be talking IMF rescues.

Indonesia's rupiah had slid to Rp 3,680 to the US dollar when a package was announced to save it on 31 October. It was among the largest ever put together - US$23 billion from the IMF, plus second-line assistance totalling US$20 billion, to be disbursed over three years subject to continuous reviews. From then on the mood acquired an apocalyptic air, and foreign correspondents wrote about almost nothing else.

Dubious

Why this sudden collapse? Those in power only blamed foreign speculators. Indonesia's 'fundamentals', they said, remained strong. Most economic columnists agreed. But their inability to predict the catastrophe cast serious doubts on all the orthodoxy that passes for economic science.

More critical observers began to ask what these 'fundamentals' really amounted to. Perhaps the speculators were not creating a new problem from the outside but feeding, like vultures, on something rotten within. Perhaps Indonesia's lovely macro-economic indicators did not give the whole picture. 'Indonesia no longer has fundamentals', said a common joke.

Kwik Kian Gie, for one, had long spoken about the more dubious 'micro- economic' indicators. By this he meant the grubby details of how state banks give unsecured loans to friends of the regime, and how the Suharto family and friends won monopolies on everything from newsprint to cigarette cloves. Economist Hartoyo Wignyowiyoto said only half-jokingly that Indonesia was a 'mafia' economy, and went on: 'I have observed mafia systems all over the world. They only end when the godfather disappears'.

Even more important than the 'mafia' economy, and certainly not unrelated to it, was the towering foreign debt. Critics who had warned that Indonesia's foreign debt was nearing the Latin American levels before its spectacular collapse in the early 80s were for years seen as spoil-sports by enthusiasts for the 'Asian miracle', among them the World Bank. When the speculators divined correctly that there was a problem, no one was ready for them.

Debt

If high debts had been a problem while times were good, they became simply impossible after the rupiah began its nosedive in July 1997. For a start, no one knew how much foreign debt there was.

The government was indignant when the French analyst firm Indosuez said in December it could be as high as US$200 billion, with three quarters of it owed by private firms and a third due for repayment in the next three months. (The amount is equal to Indonesia's entire gross domestic product!) But the government's own figures had by early February crept up from US$118 to US$137 billion. And it did agree a lot of it was short-term debt - typical of a bubble economy.

Back-of-the-envelope calculations showed that when converted to rupiah, the additional short-term private debt caused by the drop in the rupiah's value alone was larger than the total number of rupiahs in circulation.

Every Indonesian man, woman and child now bore a debt of Rp 7 million - for it is they who will ultimately be asked to pay it back. None of the IMF measures made any provision for lightening Indonesia's foreign debt burden. Indeed the new loan added to it.

Quagmire

IMF packages never vary. The world over, in exchange for help, they sternly demand government belts tightened and markets opened to foreigners. Yet success is by no means assured. About half the time, despite the added pain, they fail to lift the target economy out of its quagmire.

The 31 October package had several components, none surprising except perhaps for their vagueness. The national budget had to show a surplus of 1% of gross domestic product, the current account deficit (measuring the amount by which exports fall behind imports) had to be reduced to 3% of GDP within two years, semi-private monopolies on all food imports and distribution except rice had to be removed, import tariffs on chemicals and some other commodities were to be reduced, and the banking sector had to be cleaned up by liquidating non- performing banks. Perhaps more conditions were kept secret.

Suharto had asked for IMF help but he was obviously reluctant to play ball with them. Their recipe attacked the heart of a system upon which, like it or not, millions depended. The budget surplus demand would do nothing to combat rising prices and unemployment and would thus contribute to unrest around the country. Besides, applying the IMF scalpel to monopolies and banks meant damaging Suharto's family business empire and this would hamper his ability to play traditional money politics with the elite.

Caught between a rock and a hard place, the government searched for ways to evade costly IMF demands. Less than two months after postponing the 15 mega- projects, most were quietly given the go-ahead to continue anyway. When Suharto's son and his half-brother openly challenged a government decision on 1 November to close their banks, which were among the 16 it considered in breach of the rules, the action against them was half-hearted at best.

Budget

Almost as if it cared for democracy, the global currency market now began to focus less on the economy than on the president. It reacted negatively to almost anything he did or didn't do. If Suharto was ill (as he was again in December after an exhausting world trip), the rupiah dropped. If he hesitated on IMF demands, it dropped. If he indicated he wanted the big-spending Habibie for vice-president, it dropped. When Finance Minister Mar'ie Muhammad came to ask them for a roll-over of private debt, top business leaders in the USA only wanted to know who would succeed Suharto. Throughout December, the rupiah fell from Rp 4,000 to about Rp 6,000 to the dollar.

On 6 January Suharto read out a draft 1998/99 budget that failed to meet the IMF requirement to show a surplus. It was also based on wildly optimistic exchange rate and growth projections. The currency market, unconcerned by the view that a budget surplus may actually be bad for Indonesia, allowed the rupiah to sink to a quarter of its pre-crisis level against the US dollar: Rp 10,000. Almost worthless. It even touched Rp 17,000 to the dollar before oscillating around the Rp 10,000 mark in mid-February.

Not only foreigners were now dropping the rupiah, but Indonesians rushed to sell their own currency - especially those with dollar debts falling due soon. With debts far larger than what they owned, most large companies were by mid- January technically bankrupt.

The IMF was not amused with the budget. It pressured Suharto to once again cancel the 15 mega-projects. President Clinton, betraying that he was the real power behind the IMF screen, urged Suharto in a telephone call from Air Force One to get serious about the IMF demands. Prime Ministers of other donor countries followed suit, including Australia's John Howard. On 15 January, while IMF Director Camdessus stood over Suharto with his arms folded in true colonial style, Suharto signed a new IMF agreement that was in most respects even harsher than the earlier one.

The amount promised in aid (actually a loan, with interest, that would add to Indonesia's already huge burden) remained the same. The 1% budget surplus condition was relaxed to a 1% deficit. But the list of demands had now grown to 50 points. This time, the subsidy for diesel, lifeblood of a modern economy, was also to be cut substantially. Smaller, more inefficient banks would have it tougher as their minimum capital was forced up.

Moreover, monopolies and cartels handling commodities other than foods were also to be removed - cement, plywood, and paper were the most important. Tommy Suharto's monopoly on cloves (used in kretek cigarettes) was to go. More sectors were to be opened up to foreign ownership, including the lucrative oil palm industry. The shadowy Reforestation Fund, widely misused by bureaucrats wanting easy cash, was to go into the national budget for all to see. No more state money was to be sunk into the nepotistic 'national car' (Tommy Suharto) and the wasteful aircraft manufacturer IPTN (Habibie).

Political crisis

For Suharto it must have been a nightmare. Just as he needed all his energy to ensure opponents did not hinder his reelection as president in March, he was asked to do the impossible with an economy he no longer understood, by foreigners he no doubt detested.

He seemed to trust no one except his daughter Tutut. He did not consult before announcing several major policy decisions, which then caused confusion all round. The Golkar machine, as if flying on automatic pilot, calmly nominated the 76-year old for a seventh five-year term in office, and would not answer questions about a succession.

Predictions of unrest proved right. Even during the fasting month Ramadan, but especially after it in February, food riots broke out all over the country. Chinese forced to raise prices found their shops stoned and looted all over Java, as well as in Sulawesi and islands further east. These young looters were being asked to pay for the misdeeds of the 50 or so super-wealthy dollar debtors. But they had little idea who to blame, so they took it out on shop keepers.

Decisive reforms were called for. Only a new government could deliver them. Yet for even the most visionary opposition leaders the challenge was mind- boggling. How could they bring together the contradictory wishes of the dissatisfied poor on the one hand, and all-powerful global currency traders on the other, to turn around a deep-seated elitist system?

Even God seemed against them. An opposition alliance gained shape that brought together secular leader Megawati Sukarnoputri with Islamic leaders Amien Rais and Abdurrahman Wahid. But Abdurrahman Wahid, better known as Gus Dur and the best hope of bridging the traditional divide between secular and Islamic politics, had a serious stroke on 19 January.

Gerry van Klinken edits 'Inside Indonesia'.