New York Times Editorial

Eighteen months ago, Indonesia was one of the developing world’s most confident and successful nations. Today it has a President, B. J. Habibie, without political legitimacy who is trying to save tens of millions of people from hunger, calm ethnic tensions and right an economy in which perhaps half the citizens are now poor and half the companies bankrupt. But Indonesia cannot recover until it becomes a stable and democratic nation, with political institutions for fighting corruption and addressing dissatisfaction before it turns into riots and ethnic unrest.

Indonesia is in far worse economic shape than other Asian nations because of the stubbornness of Mr. Habibie’s predecessor and mentor, Suharto, and the lack of political acumen of the International Monetary Fund. When the I.M.F. offered Indonesia emergency aid a year ago, Mr. Suharto promised to close corrupt banks and insolvent companies owned by his friends and family. His refusal to keep the promise cost Indonesia billions of dollars in I.M.F. loans and discouraged foreign investment. No real reform began until Mr. Suharto left office in May.

Today the priority of Indonesia, the World Bank and the I.M.F. is to relieve suffering. Between 40 million and 100 million people now have only one meal a day. Rice is available, but people cannot afford it. Last month the Government began giving vouchers to women that allow them to buy rice for their families at a quarter of the market price. The program now reaches about 25 million people and aims to reach 70 million. But the subsidized rice is only enough for one week, and might not go to the very poorest. Job programs, subsidized medicines and scholarships to encourage children to stay in school are also available.

The I.M.F. has abandoned its normal gospel of budget austerity so Indonesia can continue subsidizing food. As one condition for $11 billion in loans, it has set the target for the 1998 budget deficit at 8.5 percent, far above the usual I.M.F. prescription. Economic reforms have begun, but very slowly. Restructuring banking, improving bankruptcy laws and liberalizing trade are most important. Indonesia also needs to recover billions of dollars that the central bank lent to Suharto cronies.