Indonesia's Way Out

President Suharto of Indonesia is proving to be a reluctant reformer, at best. The International Monetary Fund - with the concurrence, no doubt, of the US Treasury - has for now postponed the next payment in its $43 billion bailout package for Indonesia.

It would be easy to say this is just deserts for a stubborn autocrat just "elected" to his seventh term by a People's Consultative Assembly of his own choosing. But things, alas, are not quite that simple.

Suharto is facing the greatest crisis of his long rule. The economic system he fostered - which boosted living standards for most Indonesians while bestowing special favors on presidential friends and family - is teetering. But Suharto is hardly on the verge of being forced from power by student protesters in the cities.

The president's problems, in fact, pale before those of millions of his people. Indonesians face plunging earnings, skyrocketing prices, and food shortages. These are the grass-roots effects of the fallen Indonesia rupiah. Suharto's motives may be political, but he's right to insist that the disastrous effects of the currency collapse get prompt attention.

His option of choice, right now, is a currency board that would arbitrarily peg the rupiah to the US dollar. That could immediately jack the currency up to around 5,000 rupiahs to the dollar. (It's now so weak it takes more than 10,000 to buy a dollar.) The IMF worries such a "pegged" currency would allow the rich to convert their wealth to dollars and ship it abroad, thus deepening the economic woes.

Asian markets, however, have responded to rumors of a currency board by boosting the rupiah's value. Suharto, seeking the quickest possible fix, may be more impressed by that market signal than by warnings from Washington or the IMF.

The latter, in fact, is softening its flat opposition to a currency board. Stanley Fischer, IMF deputy managing director, told the Wall Street Journal that a currency board approach might be acceptable in less than six months - if reforms to shore up Indonesia's banking system and restructure its foreign debt were up and working first.

Suharto, impatient for results, may balk at delay. But he ought to weigh another quote from Mr. Fischer in the same article: "For things that are essential to the poor, the fund would show flexibility."

So a currency board could be in the works. And, at the same time, the IMF might postpone its demand that Suharto end government subsidies of foodstuffs and basic fuels. This would ease the burden on the poor. These could be the first planks of a compromise that recognizes and links key elements - (1) reforms that will restore international confidence in Indonesia's economy, (2) concrete steps to shore up the currency, and (3) measures to help average Indonesians.

Progress along this path will demand vision and pragmatism on all sides. Is Suharto up to the challenge? Can he cut privileges enjoyed by cronies and family to improve the long-term prospects of his country?

Change has to come in Indonesia. The reforms pushed by the IMF are only a start. Human rights and political freedoms are even bigger issues waiting in the wings.