Suharto's legacy of development and

corruption
By Donald Greenlees

Published: Monday, January 28, 2008

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The Indonesia that marked Suharto's passing with a state funeral Monday has regained some
of its lost prosperity and confidence in the nearly 10 years since he was ousted from office
amid riots and economic chaos.

Its economy has recovered from ruin. This year, growth is expected to be 6.4 percent,
according to the World Bank. Investment has been expanding at 7 percent to 8 percent a year
since 2006. Poverty rates, which surged during the economic crisis, have fallen.

Politically, it is also very different from Suharto's autocratic New Order regime, after genuine
democratic elections for the legislature in 1999 and direct elections for the president in 2004.

While Indonesia was remaking itself in a more liberal, economically open mold during those
years, Suharto's fate was largely a sideshow.

But as his health failed in recent days, and the new guard of democratically elected politicians
went to his bedside, Indonesians confronted contradictory feelings for the man the country
once dubbed the "father of development."

Until his fall in May 1998, Suharto was at the apex of an oppressive and deeply corrupt state
apparatus, in which the hand of the military reached into every level of government from
national administration to the village, dissent was quashed violently and human rights were
routinely abused.

Yet it was also a time of remarkable progress in people's welfare. By one measure, poverty
was cut from almost 60 percent of the population when Suharto took office in 1968 to 13
percent by the time the economic crisis hit in 1997. Infant mortality declined, and access to
education and health care improved dramatically.

Robert Elson, professor of Southeast Asian history at Queensland University and author of
the most authoritative biography of Suharto, visited Indonesia as a doctoral student in the
1970s and discovered a "pretty awful place."

"Jakarta was a shambles. Streets flooded, nothing worked, there were hardly any buses, a lot
of beggars. By the 1990s all that had changed dramatically," he said.
"In terms of the economic legacy, notwithstanding the corruption and diversion of off-budget
monies to various projects of fairly dubious quality, the fact of the matter is that poverty did
decline in ways that are world historical."

Even when Suharto fell from grace in the midst of the regionwide economic crisis,
Indonesians were divided over how he should be treated.

Many were inclined not to blame him for the national malaise, but rather those around him, in
particular his avaricious children.

Still, the political legitimacy of Suharto and the New Order was rooted in the promise of
rapid economic growth. That was delivered, with only brief interruptions caused by the oil
shock of the mid-1970s. Growth was maintained at an annual average rate of about 8 percent
in the last decade of his rule.

When the economy collapsed and the remedial policy responses of the government and the
International Monetary Fund only worsened the crisis, Suharto was finished.

Despite the emergence of democracy and an economic recovery in the decade since,
Indonesia has not replicated the same degree of economic success it enjoyed in the heyday of
the New Order.

The decline in poverty that accompanied recovery from the 1997 economic crisis was
actually reversed in 2006, when cuts to fuel subsidies sent about 3.5 million people back
below the poverty line, before the trend away from poverty resumed.

Economic growth and investment have yet to match the better days of the Suharto era.

In a recent report, the World Bank pointed out that the investment share of the total economy
was 23.9 percent in mid-2007, compared with almost 30 percent before the economic crisis.
Investment in mining and energy - one of the mainstays of foreign direct investment - and in
infrastructure has been weak.

Foreign investors have consistently complained that democracy has increased uncertainty for
them, with overlapping and sometimes contradictory laws and jurisdictions. Regional
autonomy laws have given more powers and a bigger share of revenues to the provinces, with
sometimes chaotic results.

After years of neglect under Suharto, the judiciary and law enforcement agencies also proved
ill-equipped for the greater responsibilities thrust upon them.

"Because of the institutional uncertainty created by the massive transition to democracy at

national, provincial and also local government levels, you just haven't got the investor
certainty," said Hal Hill, an expert on the Indonesian economy at the Australian National
University. He warned that low infrastructure investment - running at about half the level as a
proportion of the total economy under Suharto - would "put a brake on long-term growth."

Although Indonesians have enthusiastically embraced democracy and newfound freedoms of

expression, it has been common since the early days of reform to find people from street
peddlers to tycoons who express some nostalgia for the apparently robust economy and
stability overseen by Suharto.

"In that period, Indonesia was acknowledged as an Asian Tiger," said Umar Juoro, a former
economic adviser to Suharto's successor, Bacharuddin Jusuf Habibie, and who as a student
led protests against Suharto in the late 1970s.

"It is not just nostalgia. There is a living legacy. In economic terms, he will be remembered
as the leader that brought the Indonesian economy to a modern level and made it competitive
with its neighbors."

As people line the streets of Jakarta to bid farewell, or good riddance, to Suharto this week,
some will be in a generous mood. It is one of the traits of Indonesians to forgive their rogues.

But 10 years ago, the same streets were filled with cries from students and the mob to hang
him. One of his most profound legacies - and one of the main reasons why the people turned
against him - was the naked greed that characterized his regime, especially in its late years.

Corruption was pervasive. At the bottom, petty officials stole nugatory amounts. At the top,
the scale of the theft was egregious.

It was also blatant. Suharto's six children, other relatives and his business friends were
granted state monopolies over commodity sales, exclusive supply contracts and special tax
breaks. Instruments like trade policy were often used not to further the national interest but
the business interests of a single wealthy individual, or a handful.

"Under Suharto, corruption was a well-managed franchise, like McDonald's or Subway," said
Elson, Suharto's biographer. "Everybody knew how much you had to pay and to whom.
Suharto didn't invent the depth and breadth of corruption. What he did was to manage it on a
scale that no one had ever been able to do before."

When Suharto published an autobiography in 1988, he began with what he regarded as one of
his finest achievements: the doubling of rice production so that Indonesia, once the biggest
rice importer in the world, could become sufficient in the production of its staple food. This
was especially significant to a man who grew up poor in a rice-growing region of central
Java.

But for all his development accomplishments, many analysts think his economic record will
be overshadowed by the rampant corruption of his regime. Transparency International still
rates Indonesia as one of the worst countries in the world for corruption.

"Indonesians are usually easy to forgive and forget," said Rizal Malik, secretary general of
Transparency International in Indonesia. "But all the economic success under Suharto was
wiped out in the economic crisis in 1997. There was clearly something wrong, and what was
wrong was corruption."