By Sandra Sugawara
Washington Post Foreign Service
Saturday, May 16, 1998; Page C01

TOKYO, May 15—U.S. and other foreign companies were flying employees en masse out of a chaotic Indonesia today, with plans to go back when the looting and rioting dies down. But the business environment they will find on that return may well have changed forever.

Carefully cultivated ties to President Suharto's family and friends, key to smooth dealings with the government for more than three decades, will have little value if Suharto is forced out. And if he first puts up a prolonged and bloody fight, those ties could be a liability in dealing with whomever follows Suharto.

Robert Broadfoot, managing director of Political & Economic Risk Consultancy in Hong Kong, said "the longer Suharto stays, the greater the risk that whoever comes into power could be quite radical and anti-foreign. Then foreign companies would be faced with an Iranian situation, and that's when merely by being there when Suharto was, you're associated with the old regime."

Many foreign companies are hoping for a moderate successor who will pursue democracy and the kind of economic reforms being adopted in South Korea and Thailand. "That might restore confidence," said an American businessman based in Tokyo, whose company has operations in Indonesia.

Most companies contacted by a reporter said they were only temporarily suspending operations in Indonesia. None had plans to close down and get out for good. Despite its current problems, foreign corporations see tremendous growth potential in Indonesia, which is the world's fourth most populous country, with 200 million people and an enormous wealth of oil and other natural resources.

During his long rule Suharto has doled out monopolies to members of his family and cronies. Though most Indonesians have enjoyed a significant rise in living standards under his rule, many resent that people close to Suharto are so much better off.

Foreign company executives have long complained about being hit with demands for bribes, "fees" and "donations" and suggestions that they hire Suharto's pals. The whole system has distorted competition, stifled entrepreneurship and kept some prices unreasonably high, economists say.

"Most of the foreign companies we talk to are looking at this crisis as an opportunity," Broadfoot said, despite the fact that business in Indonesia today ground to a halt and the banking system basically shut down as looters and arsonists rampaged through much of Jakarta.

The parade of big-name multinationals that fled today -- petroleum companies, banks, securities firms, auto and electronics companies -- say they plan to be back, and soon.

Nissho Iwai, a Japanese company, is suspending construction of a petroleum project that it is building in Indonesia with other companies. But it plans to resume work as soon as the economy stabilizes. "Nobody doubts that Asia is a growth market in the next 20 to 30 years," a spokesman said.

"With a change in government, the foreign companies we've been talking to feel they might be able to help shape the new business environment, especially in a country that is on its back," Broadfoot said.

"Officials may be looking for ways to handle infrastructure investments, telecom," he said. "Before, companies were told: 'Get into bed with this guy and he'll get you your license.' But now maybe a new government would try to figure out how to reorganize the telecom industry to rebuild investor confidence."

Some foreign businessmen today noted that changes in leadership in South Korea and Thailand have helped push economic reform in those countries. But they acknowledged that both those countries are democracies, and that a more likely scenario in Indonesia could be a military takeover.

Still they said that would be an improvement if the new leader was moderate and made an effort to dismantle some of the Suharto children's monopolies, which have been criticized by the International Monetary Fund.

Most businessmen, and many analysts who normally talk regularly to reporters, declined to be quoted because of the volatile situation in Indonesia.

Stock and currency markets in the region were calm today, despite fears that the violence in Indonesia would cause foreign investors to flee. Officials from Thailand, South Korea and the Philippines, remembering last year's contagion effect -- when new problems in one Asian country could send the entire region's markets plummeting -- tried tactfully to differentiate themselves from Indonesia today. South Korea, for example, announced it would scrap current limits on foreign ownership of publicly traded companies on May 22, ahead of schedule.

But analysts said that they expected the Indonesian crisis to keep equity investors away from the entire region, at least for the near future. "We're in the knee-jerk phase," said an analyst for a U.S. investment bank.

The turmoil in Indonesia comes at a time when unemployment is soaring in Asia and fears have been growing about Japan's economy, the second-largest in the world. Because Japan is the largest lender to Indonesia, its crisis could hurt Japan's already fragile banking system. In addition, analysts expect the Indonesian crisis to put the Japanese yen under more pressure, which would also hurt banks.

But Tokyo's currency markets today reacted calmly to the crisis, largely awaiting news from the meeting of leaders of the Group of Eight industrial countries in Birmingham, England.

Special correspondent Akiko Kashiwagi contributed to this report.