By Keith B. Richburg
Washington Post Foreign Service
Wednesday, February 18, 1998; Page A12

JAKARTA, Indonesia, Feb. 17—President Suharto today fired the independent-minded governor of Indonesia's central bank, exposing deep fissures within the country's ruling circle over economic policy and raising new questions about the future of a $43 billion International Monetary Fund bailout plan.

Analysts said the dismissal sent a signal that Suharto intends to press ahead and peg the battered local currency to the U.S. dollar over objections of the United States and the IMF. The IMF has threatened to withhold any aid if Suharto goes through with the plan to link the currencies.

Sudradjad Djiwandono, governor of the Bank Indonesia, was "terminated with respect," according to a terse statement from the presidential palace issued late in the day. He was replaced by Sjahril Sabirin, who was with the World Bank in Washington before returning here in December to become one of the directors of the central bank.

Subradjad was at his home but declined to comment tonight on his ouster, a family member said. He was considered a key opponent of Suharto's plan to set up a "currency board" that would peg the rupiah to the dollar -- a drastic measure that, if implemented, would virtually strip the central bank of its powers.

Sudradjad also incurred the wrath of Suharto's well-connected children several months ago, first by refusing a $1.26 billion line of credit to an automobile company run by the president's son Tommy, and then later by closing down 16 banks and finance companies considered insolvent -- one of which was owned by another Suharto son, Bambang Trihatmodjo. Tommy Suharto did get his credit line, but it amounted to only half of what he requested. Bambang's bank was closed, but it reopened under another name.

Suharto son Bambang and daughter Siti Hardijanti Rukmana, known as "Tutut," are the main backers of the idea of a Hong Kong-style currency board that would strip the central bank of its power to control monetary policy and peg the rupiah to the dollar. Some analysts have seen the idea of the currency board as simply a vindictive effort on the part of the Suharto children to wrest economic policy away from the central bank.

"Sudradjad had become a voice of independence," said Eugene Galbraith, the global research director for ABN Amro Asia Ltd. in Hong Kong and a specialist on Indonesia. "I think this is churlish, and simple vindictiveness," he said of Subradjad's firing. "The name of the game is that Suharto is erratic."

Other economists and international officials who declined to be named ascribe a darker motive to the Suharto children's advocacy of the currency board: It could stabilize the value of the rupiah just long enough for them and other well-connected Indonesians to spirit their capital out of the beleaguered country.

Analysts said it was unusual for Suharto to change a top official before the end of a term, and they could recall only one other time when it occurred. Also, the entire government lineup is expected to change next month, after Suharto is reelected by a consultative assembly to his seventh five-year term as president. Suharto could have waited three more weeks to replace the central bank governor as part of a normal cabinet reshuffle, they said.

To remove him now, analysts said, indicated Suharto's extreme displeasure with his central bank chief, and with the bank's inability to halt the plunge of the currency. The measure also indicates a victory of the so-called "economic nationalists" and the powerful Suharto children over the Western-educated technocrats who so far have been in charge of economic policy.

The idea of the currency board has exposed that fissure. Most technocrats, including officials in the Finance Ministry, oppose the idea, preferring instead to follow the IMF prescriptions, which include breaking up some of the country's monopoly interests -- directly affecting the Suharto children's businesses -- and ending costly subsidies to pet projects. But those pushing the idea of a currency board believe the IMF package has so far failed to reverse Indonesia's economic decline and is imposing conditions that are too stringent while opening up the country to foreign domination.

The signing of the IMF agreement to bail out the economy was seen as a victory for the technocrats. But as the currency has continued to weaken against the dollar -- bringing more companies here to the brink of bankruptcy -- Suharto has apparently lost patience and now appears to be siding with his children and others in the economic nationalist camp arguing for a "quick fix" solution to the country's mounting problems.

The Suharto children have enlisted the help of American academic Steven H. Hanke from Johns Hopkins University, a leading proponent of currency boards who has assisted in setting them up in Argentina, Lithuania and Bulgaria. Hanke, who was just made an economic adviser to the government, today told a luncheon gathering of journalists and businessmen that he saw no contradiction between an Indonesian currency board and the reform measures mandated in the IMF bailout package.

He received support today from an unusual source: Sen. Lauch Faircloth (R-N.C.), chairman of the Senate Banking Committee's subcommittee on financial institutions, said in a statement released here that the currency board "would go a long way to establishing confidence in Asia."

In the statement, Faircloth said that by opposing the currency board idea and threatening to withhold its $43 billion in bailout money, "the IMF is showing its true colors."

"IMF bureaucrats want to manage the world's economy, not allow countries to reform themselves free from the IMF," he said.

A Western diplomat here said he did not believe Suharto would go ahead with the currency board plan, given the strong IMF objection and a weekend phone call from President Clinton. "I don't think they will go in defiance of the IMF," he said. "They've shown a willingness to consult," he said. "The precipitous drive to a currency board has slowed."

Other analysts today also predicted an eventual compromise, where a currency board might be implemented, but delayed until after other reforms are in place.

An IMF official, who insisted on anonymity, said the firing of Sudradjad "was not unexpected," because Suharto's displeasure with the central bank has been evident for some time now. And although the move appeared to be an escalation in the confrontation between Suharto and Washington, the IMF official said, "there is some hope things may change."

He cited no specific evidence that Suharto is wavering, but noted that the Indonesian president "has never said that he would put a currency board in place."

Staff writer Paul Blustein contributed to this report from Washington.