Suharto Resigns, Making Way for Habibie Summary

  • Last updated on November 10, 2022

After thirty-two years of rule, Indonesian president Suharto was forced to resign amid a storm of public protest. Power was transferred to the vice president, Bacharuddin Jusuf Habibie, whose rule marked the end of a period of autocratic political stability and the start of a period of political instability.

Summary of Event

Suharto’s resignation removed from power one of the world’s longest-serving heads of state. Suharto himself had seized power by military force and political maneuvering in 1966. In ill health, President Sukarno transferred power to General Suharto on March 11. Exactly one year later, Suharto was appointed by the House of Assembly as acting president. On the following day, Suharto announced his “New Order” program to replace Sukarno’s “Guided Democracy.” Under the New Order, the Indonesian Communist Party (Partai Komunis Indonesia, or PKI) was banned, as well as labor unions, and strict censorship was imposed on the press. Within a short time, 200,000 dissidents were arrested. In 1968 and every five years thereafter, Suharto stood unopposed for election to the presidency by the House of Assembly. Indonesia;government [kw]Suharto Resigns, Making Way for Habibie (May 21, 1998) [kw]Habibie, Suharto Resigns, Making Way for (May 21, 1998) Indonesia;government [g]Southeast Asia;May 21, 1998: Suharto Resigns, Making Way for Habibie[10030] [g]Indonesia;May 21, 1998: Suharto Resigns, Making Way for Habibie[10030] [c]Government and politics;May 21, 1998: Suharto Resigns, Making Way for Habibie[10030] Suharto Habibie, Bacharuddin Jusuf Wahid, Abdurrahman Sukarno

The anticommunist Suharto regime was a welcome development for the United States, which was reaching the high point of involvement in the Vietnam War. Large development loans were secured from the World Bank, an estimated 70 percent of which were actually used for development. The remainder fed an extensive network of corruption. As world oil prices skyrocketed in 1974, Indonesia’s economy boomed. By the 1980’s, stable authoritarian control over labor and foreign investments gave rise to the manufacture of textiles, clothing, and footwear. By 1985, Indonesia achieved rice self-sufficiency and was no longer dependant on imports.

In the summer of 1997, Indonesia’s soaring economy was hit by a financial storm that also struck the economies of the other industrializing nations of Southeast Asia. Indonesia, whose barely regulated economy was controlled by a network of family members and friends, was hit hardest of all the so-called Asian tigers. Inflation soared out of control as living standards of the poor steeply declined. The International Monetary Fund (IMF) offered Indonesia a $43 billion loan, but only if stringent economic reforms were implemented, including the dismantling of the vast corporate empire controlled by Suharto’s family and friends. Suharto was unwilling to comply with the stipulations until more than a year later.

By the end of 1997, sixteen major banks had collapsed, as had the political and physical health of Indonesia’s aging leader. Meanwhile, natural disasters compounded human-made catastrophes. The country was struggling with a dengue fever epidemic that received world attention as well as one of its worst droughts in modern history. Starvation threatened people in many parts of the formerly self-sufficient nation.

As hundreds of companies were formed to handle new business concerns, it was Suharto, his six children, and a small number of entrepreneurs tied to his family who had controlling interests in the companies. They also acted as middlemen for purchasing most government imports and for arranging export sales of such major commodities as oil, petrochemicals, and lumber. Internally, Suharto controlled monopolies of such major commodities as flour, cement, tobacco, and timber. The best real estate for building and industrial development remained in family control. For both foreigners and Indonesians, the price of doing business in Indonesia involved making large contributions to the hundreds of so-called charities that provided slush funds for Suharto. Moreover, Suharto concerns paid back to the government little or no taxes. By the time of his fall from power in 1998, the leader of the fifth-most-populous nation in the world had become the world’s sixth-richest individual, and all of his six children controlled financial empires of their own.

In January, 1998, price riots broke out throughout Jakarta with violent attacks against the city’s wealthy ethnic Chinese residents and businesses associated with the Suharto family. Student protests aimed at overturning the corrupt Suharto regime grew in size and gained outside support from more tradition-oriented Muslim organizations. Protests were met by repression by an army and police accustomed to restricting dissent. Public rage grew after April 8, after Suharto announced steep cuts in government subsidies of fuel and food in order to secure an IMF loan. On May 12, riot police opened fire on student protesters at Jakarta’s Trisakti University, leaving six dead. This act only created martyrs and an increase in the number and intensity of demonstrations. Riots over the next three days torched shopping malls, buildings, and automobiles and wrecked the Chinatown section of North Jakarta, resulting in more than one thousand deaths and an estimated $1 billion in property damage. Suharto’s promise on May 15 to restore fuel subsidies was too little, too late.

Suharto (left) announces his resignation in Jakarta.

(AP/Wide World Photos)

Protests came to a head on May 18 as a huge crowd gathered outside the parliament building. Military units and riot police helplessly stood by. Thousands of students entered the parliament building to begin a sit-in, and they demanded Suharto’s immediate resignation. The following day, Suharto promised to hold early elections and not to run again for the presidency (although he was reelected by parliament for a five-year term in 1998). Suharto’s offer was immediately rejected by the demonstrators.

Resignation pressures were heightened on May 20, when Speaker of Parliament Harmoko delivered a letter to Suharto demanding that he resign or face impeachment proceedings in two days. Bowing to the inevitable, Suharto resigned from the presidency on May 21. Eleven of Suharto’s cabinet ministers also resigned. Power was automatically transferred to the vice president, Bacharuddin Jusuf Habibie, an intimate political and business associate. A colorless aeronautical engineer, Habibie was practically adopted by Suharto at age thirteen and was long considered his adopted son. Habibie had served in cabinet posts for the past twenty years and was financially involved in at least forty Suharto business enterprises. Protesters claimed that all they had received was a photocopy of Suharto.

Lacking appeal and national confidence, Habibie’s regime did not produce stability. Bloody clashes continued in eastern Indonesia between Muslim and Christian populations, while numerous scandals were revealed about the Suharto family’s plundering of national wealth. Finally, early elections were held. On October 20, 1999, Abdurrahman Wahid, a Muslim theologian and religious leader who headed the National Awakening Party, became Indonesia’s first freely elected president.


In late May, 2000, Suharto was placed under house arrest while financial corruption charges were investigated. By July, he was charged with embezzling $571 million from U.S. donations to his charitable foundations. Stroke, heart problems, and intestinal bleeding caused court-appointed doctors to declare him medically unfit to stand trial. If he had ever been declared fit to stand trial by Indonesia’s attorney general, Suharto would have been subject to charges of corruption and human rights violations. One large portion of his assets, about $9 billion, was said to reside in an Austrian bank. Suharto’s son Hutomo Mandala Putra (known as Tommy Suharto) was sentenced in 2000 to eighteen months for real estate fraud and had fifteen years added to his sentence for planning the murder of his judge. Suharto’s half brother Probosutedjo was convicted in 2003 of corrupt practices and received a jail sentence of four years.

During Suharto’s rule, his relatives, friends, and associates became fantastically wealthy while the working poor remained impoverished, earning at the time of Suharto’s fall less than two U.S. dollars per day. The middle class became increasingly alienated, particularly after the expanding economy was shattered in the economic crisis sweeping Southeast Asia in 1997. Suharto family members were so enmeshed in the Indonesian economy that it would be difficult to eliminate them or the vast patronage system that they headed. It also proved difficult to get back billions of dollars in foreign banks and overseas investments that were looted from the national wealth. Patterns of corrupt business practices, the legacy of rule through military power, and the callous destruction of native cultures and tropical rain forests will be difficult things for successor governments to reverse. Suharto ranks among the most corrupt political leaders in modern history. Indonesia;government

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Colmey, John, and David Liebhold. “Suharto Inc.” Time, May 24, 1999. Extensive exposé of Suharto and his family, published on the first anniversary of the Indonesian dictator’s resignation.
  • citation-type="booksimple"

    xlink:type="simple">Elson, R. E. Suharto: A Political Biography. New York: Cambridge University Press, 2001. Detailed and scholarly study of Suharto’s life. Includes archival sources and interviews of key individuals. Maps, footnotes, glossary, and select bibliography.
  • citation-type="booksimple"

    xlink:type="simple">Vatikiotis, Michael R. Indonesian Politics Under Suharto: The Rise and Fall of the New Order. New York: Routledge, 1999. Survey and analysis of Indonesian politics during Suharto’s regime. Notes and index.

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Categories: History