By Cindy Shiner
Special to The Washington Post
Saturday, March 14, 1998; Page A17

JAKARTA, Indonesia, March 14 (Saturday)—President Suharto effectively thumbed his nose at the West today by naming a controversial cabinet of cronies, including his eldest daughter and one of his closest business associates.

Two appointments likely to cause concern at the International Monetary Fund and in the United States are Suharto's daughter, Siti Hardijanti Rukmana, known as Tutut, and ethnic Chinese timber tycoon Muhammad "Bob" Hasan. Hasan was named industry and trade minister, and Tutut is the new minister for social affairs.

Suharto's "attitude is, 'I know what I want and I do it my way and nobody can influence me how I can handle this,' " economist and former minister Emil Salim said. But "there are positive points." Salim added that Suharto appointed people he could "completely trust and doers that can fix the job and can do the job."

The cabinet announcements are likely to complicate negotiations next week between the Suharto government and the IMF over terms of a $43 billion bailout that already has run into trouble because of Suharto's reluctance to implement economic reforms. The United States is involved in the bailout and in negotiations over its implementation.

Indonesia is suffering from a crisis of confidence of potentially global proportions. Capital flight is out of control; the currency, the rupiah, has lost more than 70 percent of its value since the crisis erupted last July; many companies are on the verge of bankruptcy; and unemployment and inflation have soared.

Some of the economic reforms Suharto balked at carrying out would hurt the business interests of many of his friends and children, who have amassed billions of dollars, along with their father, during his 32 years in power.

Tutut, 47, made her money through the construction of power plants and toll roads. Her latest project is building a three-decker transport system through Jakarta, including a subway. The main business interests of Hasan, whose Chinese name is The Kian Seng, are in the forestry sector; he also controls the Indonesian Plywood Association, which was supposed to be dismantled under terms of the IMF agreement. A nationalist, Hasan's relationship with Suharto goes back 40 years. They are golfing partners.

Hasan is the first minister of Chinese descent since Suharto took power in 1966. Ethnic Chinese make up only 3 percent of the population but control an estimated 70 percent of the country's wealth. Since the crisis began and confidence in Indonesia's banking sector dissolved, many Chinese have spirited their money abroad, contributing to the country's currency crisis.

Appointing Hasan to the cabinet "is something like tokenism" to appease powerful Chinese businessmen, said Muhammad A.S. Hikam of the LIPI research institute in Jakarta. Ethnic Chinese businesses bore the brunt of riots that swept the country in January and February. They are often targeted during political and economic turmoil.

Speculation that Suharto would appoint Tutut, Hassan and other cronies to his cabinet has evoked consternation among U.S. and IMF officials in recent days, but they have refrained from commenting publicly.

In an indication of Washington's view, former vice president Walter F. Mondale, who was sent by President Clinton to Jakarta earlier this month to meet with Suharto, expressed concern Thursday over the pending cabinet appointments.

Mondale said he told Suharto that he must convince markets of his intention to pursue sound policies, in part by appointing officials who inspire confidence among investors. "I'm not going to pass judgment on these people [such as Hasan], because I don't know enough about them," Mondale said in an interview. "But just based on the way these names are being evaluated, one wonders whether it doesn't go in the wrong direction."

However, reaction in Jakarta among political and economic analysts to the cabinet appointments was not altogether negative. The economist, Salim, who studied in the United States and helped guide Indonesia through remarkable growth until the crisis last year, compared Suharto's choices to "betting on two horses -- still negotiating with the IMF, which is one road, and the other road is a possible alternative." One possible course for the new Suharto government is implementing a controversial plan to peg the rupiah to the dollar. The IMF considers it potentially disastrous if carried out under Indonesia's present economic conditions.

The new finance minister, Fuad Bawazir, reportedly supports the currency board. He replaces Marie Muhammad, who failed to stem the deep slide in the rupiah's value since July. Another close aide to Suharto, Gen. Wiranto, the recently appointed armed forces chief, was named defense minister.

Salim praised other appointees. "A lot of these ministers are professionals, not politicians, and they are known. The politicians are given trivial posts," he said. "My first impression is where you need professionals, you got professionals."

Staff writer Paul Blustein in Washington contributed to this report.