From Third World to First The Singapore Story pdfdrive com

partners were ethnic Chinese, creating an undercurrent of resentment. We set out
to find pribumi (indigenous) Indonesian partners. It was difficult because their
successful entrepreneurs were ethnic Chinese, but we did manage to have joint
ventures with several pribumi.
At all our meetings, Suharto and I would always make time to meet 
empat
mata
, when we could have uninhibited free-ranging discussions, and I would test
out ideas which he could reject without any embarrassment. This made for
rapport and confidence. I had assured him that we would not establish
diplomatic relations with China until Indonesia had done so. So before
Singapore exchanged commercial offices with China, I met him personally to
explain that this was an exchange of commercial representation to facilitate trade
and did not amount to diplomatic representation. He accepted this.
By the mid-1980s, the Indonesians had swung around to the view that, far
from being a supporter of China, we had in fact consistently stood up for our
interests as Southeast Asians. Our economic relations had also improved.
Indonesia had opened up all its ports to all ships and relaxed its rules for import
and export. They no longer harboured suspicions of “smuggling” to Singapore.
(Of course there were new complaints, that Indonesian traders were smuggling,
from Singapore into Indonesia, electronic and other consumer durables to avoid
paying high import duties. But this was an Indonesian customs problem for
which we could not be blamed.) Also, Singapore’s role as middleman for
Indonesia’s trade with China had ceased to be an issue because Indonesia had

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opened direct trade with China.
Good relations at the top between Suharto and me led Benny Moerdani, the
Indonesian minister for defence and security in the 1980s, to propose and
implement the development of the joint Siabu Air Weapons Range, near the
Sumatran town of Pekan Baru, for use by our two air forces. It was officially
opened by the two chiefs of defence forces in 1989, marking a milestone in our
defence relations.
When I met Suharto at the funeral of Emperor Hirohito in Tokyo in February
1989, he informed me of a development that would lead Indonesia to restore
diplomatic relations with China: China was prepared to state clearly and publicly
that it would not interfere in Indonesia’s internal affairs, either at party-to-party
or government-to-government level. After Indonesia restored diplomatic ties
with China in August 1990, Singapore did likewise when I visited Beijing that
October.
A few days before I resigned as prime minister, I met Suharto when in
Tokyo for the installation of Emperor Akihito in November 1990. His wife, Ibu
Tien, was incredulous that I wanted to stand down when I was fit and healthy
and three years younger than her husband. I explained that Singapore had never
had a change in prime minister, and that it was better for me to leave at a time of
my own choosing, when conditions were most favourable.
Our bilateral relations over the years from 1965 depended first on getting the
measure of each other and learning to coexist. There were always problems to
overcome, but we could resolve them, or work around them or set them aside, to
be resolved later. In retrospect, an Indonesian president with a character and
temperament more like Sukarno’s would have been difficult to get close to and
work with. Then the history of this period would have been different for
Indonesia, and probably for the whole of Southeast Asia.
Suharto’s wife died in April 1996. When my wife and I called on him that
November, he looked bereft and forlorn. By June 1997, when we next saw him
in Jakarta, he had regained his composure, but there was a significant change.
His children had got closer to him. When we met Suharto’s daughters at a royal
wedding in Brunei on 18 August 1996, they were loaded with jewellery. Choo
remarked to our ambassador’s wife that she had not noticed this before. The
ambassador’s wife, who knew them well, having spent years in Jakarta in her
husband’s previous posting, said that when their mother was alive she had
restrained them, but after her death that restraint had gone, and they were
showing off their jewels.

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No one expected the Indonesian rupiah crisis. When the Thai central bank
stopped defending the Thai baht on 2 July 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, 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

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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 6 January 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 9:00 pm on 8 January 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 7:00
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 15 January President Suharto himself signed a second IMF package
stipulating more reforms.
On 9 January 1998, a few days before that second agreement, Suharto’s

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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 11 January 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

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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.
Prime Minister Goh visited Suharto three times, in October 1997 and January
and February 1998, to explain that Indonesia’s economy was in serious crisis
and he had to take IMF reforms seriously or the market would sell off his
currency and stocks and cause a collapse. When he came back from his final
meeting in February 1998 he told me that Suharto acted as if he was under siege,
believing that the West wanted him out. Goh had expressed concern to Suharto
that if economic conditions worsened, there would be food shortages, social
unrest and a loss of confidence in Indonesia. The president would then face
grave difficulties. Hence it was important to stabilise the economy with IMF
support. Suharto’s response was a confident assertion that the army was fully
behind him. Goh hinted that there could be circumstances in which the people
would be so hungry that the soldiers would not shoot. Suharto dismissed this
possibility. He was sadly out of touch. At that time, one Indonesian general had
said (this was reported in March by the US ambassador to ours), “If the students

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were a thousand, they will be clobbered. If they were 10,000, ABRI will try to
control the crowd. But if they were 100,000, ABRI will join the ranks of the
students.”
Several further actions that President Suharto took caused Indonesia’s
currency and stocks to slide downwards in spite of his signing a second IMF
agreement in January 1998. Later that month, news in the Indonesian press of
the president’s criteria for the post of vice-president led people to believe that
B.J. Habibie was the favoured candidate. He was known for high-cost, high-tech
projects like the building of aeroplanes. Several foreign leaders were worried by
this and went to see Suharto, quietly, to advise against such a choice. They
included the former Australian prime minister, Paul Keating, whom Suharto
considered a good friend, Prime Minister Goh and Malaysian Deputy Prime
Minister Anwar Ibrahim. Daim Zainuddin, economic adviser to the Malaysian
government, wrote to me at the end of January 1998 to ask me to see Suharto
and persuade him against this appointment of Habibie because the president’s
ministers had said that Suharto needed to be advised by his neighbours. I could
not go to Jakarta in the middle of a crisis and be seen to interfere. Instead I took
a calculated risk and, in a speech on 7 February in Singapore, cautioned, “The
market was disturbed by his (President Suharto’s) criteria for the vice-president
that required a mastery of science and technology, announced shortly after the
second IMF agreement. … If the market is uncomfortable with whoever is the
eventual vice-president, the rupiah would weaken again.” Although I had not
referred to him by name, Habibie’s supporters attacked me for this statement.
When Suharto proceeded with the appointment, fund managers and foreign
exchange dealers reacted as expected. They sold the rupiah short, and it skidded
to 17,000 rupiah to the US dollar, dragging down the regional currencies and
stock markets.
In early February 1998 Bambang, the president’s son, brought Steve Hanke,
an American economics professor from Johns Hopkins University, to meet
Suharto to advise him that the simple answer to the low exchange value of the
rupiah was to install a currency board. While he publicly toyed with the currency
board idea, the rupiah seesawed. The market was losing confidence in a
president hitherto well regarded for his experience and judgement.
Suharto’s last major military and ministerial appointments in February and
March 1998 were the most disastrous misjudgements of his life. He appointed

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B.J. Habibie as vice-president because, as he said 48 hours before he resigned,
nobody would want Habibie as president. Suharto believed that no one in
Indonesia and no foreign power would conspire to remove him if they knew
Habibie would then be president. His golfing partner, Bob Hasan, a timber
baron, was made minister for trade and industry and his daughter Tutut, minister
for social welfare. Nearly all the others appointed as ministers were loyalists
either to him or his children. The most grievous error of all was his balancing act
in appointing General Wiranto as chief of the armed forces while promoting his
son-in-law Prabowo Subianto to be lieutenant-general and chief of Kostrad (the
Strategic Forces). He knew that Prabowo was bright and ambitious, but
impetuous and rash.
I had met Prabowo at two lunches in Jakarta, in 1996 and 1997. He was
quick but inappropriate in his outspokenness. On 7 February 1998 he saw me
and Prime Minister Goh separately in Singapore to deliver a strange message,
that the Chinese in Indonesia were at risk because in any trouble – riots – they
would be hurt as a minority, and Sofyan Wanandi, a well-known successful
Indonesian Chinese businessman active in politics, was in grave danger as a
“double minority”, a Chinese and a Catholic. Sofyan had said to him and several
other generals that President Suharto had to step down. When I expressed my
disbelief, Prabowo insisted Sofyan did say this, and that the Chinese Catholics
were a danger to themselves. Both the prime minister and I puzzled over why he
should want to tell us this about Sofyan when it was patently unlikely that any
Indonesian would tell the president’s son-in-law that the president should be
forced to step down. We wondered if he was preparing us for something that
would happen soon to Sofyan and other Chinese Indonesian businessmen.
On 9 May 1998 Admiral William Owens, a recently retired vice-chairman of
the US Joint Chiefs of Staff, saw me in Singapore. He told me of the strange
statements Prabowo had made when they met in Jakarta the day before. Over
lunch, in the presence of his two young aides, both lieutenant-colonels, one a
doctor, Prabowo said in effect that “the old man may not last nine months,
maybe he’ll die”. In a happy mood, celebrating his promotion to three stars and
head of Kostrad, he joked about talk going around that he himself might attempt
a coup. Owens said that although Prabowo had known him for two years, he was
nonetheless a foreigner. I said Prabowo had a reckless streak in him.
For several months from January 1998, student protests were confined to
their campuses where faculty members and former ministers and generals openly
addressed them to add their voices to the demand for reforms. To show he was in

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complete control, Suharto left ostentatiously in the middle of a crisis, on 9 May
1998, to attend a conference in Cairo. Inevitably the students took their
demonstrations to the streets and after several clashes with riot police, on 12
May six students of Trisakti University were shot as they retreated into their
campus. The outrage that followed led to a complete collapse of law and order as
police and soldiers surrendered the city to mobs that rampaged, looted and burnt
ethnic Chinese shops and homes and raped their women. It was general
knowledge that the rioting was engineered by Prabowo’s men. He wanted to
show up Wiranto as incompetent, so that on Suharto’s return from Cairo, he
(Prabowo) would be made chief of the armed forces. By the time he returned
from Cairo on 15 May, Suharto’s position was lost.
One after another, the closest and most loyal of his aides and ministers
deserted him after his most obedient of subordinates, Harmoko, whom he had
appointed Speaker of the national assembly, publicly demanded his resignation.
The drama ended on 21 May at 9:00 am when Suharto appeared on television to
announce his resignation and B.J. Habibie was sworn in as president.
What started as an economic problem needing an IMF rescue had ended in
the overthrow of the president. It was an immense personal tragedy for a leader
who had turned an impoverished Indonesia of 1965 into an emerging tiger
economy, educated his people and built the infrastructure for Indonesia’s
continued development. At this crucial moment, the man who had been so good
at judging and choosing his aides had chosen the wrong men for key positions.
His mistakes proved disastrous for him and his country.
Suharto never contemplated exile. The fortunes he and his family had were
invested in Indonesia. The American journalist who had reported in 
Forbes
magazine that the Suharto family had US$42 billion of assets, told me in New
York in October 1998 that the bulk of it was in Indonesia. After the Indonesian
meltdown, he estimated them to be worth a mere US$4 billion. Unlike Marcos of
the Philippines, Suharto did not spirit his wealth outside his country in readiness
for a quick exit. He remained in Jakarta. After 32 years as the president, he was
not about to run away. I did not understand why his children needed to be so
rich. But for their excesses he would have had a different place in Indonesia’s
history.
General Benny Moerdani, his trusted, loyal and long-serving head of the
armed forces intelligence agency and later commander-in-chief of the armed
forces, told me in the late 1980s that he had advised Suharto to rein in his
children’s endless demands for more business privileges. Had he listened to

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Moerdani, Suharto would not have had this tragic end. I watched a telecast of his
resignation. He deserved a more graceful exit. Suharto had concentrated his
energies on stability and the economy. His policies created the conditions for
strong economic growth from the 1970s to the 1990s in all Asean countries.
They were golden years for Southeast Asia.
Although a president by accident, Habibie believed it was his destiny to rule
Indonesia. He is highly intelligent, but mercurial and voluble. In the