Commentary

Regime Change Revisited

This article originally appeared in Baltimore Sun on June 25, 2003.

MOST PEOPLE think the overthrow of Saddam Hussein resulted from the U.S. government’s embrace of a new policy. This particular policy may be new, but the “regime change” idea and its use are not.

It is well known that Deputy Defense Secretary Paul Wolfowitz and a small group of like-minded neoconservatives developed the regime change idea some time ago and have been promoting it ever since. Mr. Hussein was not the first to fall in the cross hairs of that policy.

When the U.S. government concluded that Philippine President Ferdinand Marcos was illegitimate, he had to go. Consequently, America actively assisted in his removal from power in 1986. The point man who engineered the overthrow of Mr. Marcos was Mr. Wolfowitz, then an assistant secretary of state.

During Mr. Wolfowitz’s tenure as ambassador to Indonesia from 1986 to 1989, he planted the regime change idea once again. This time, President Suharto was in the cross hairs. He was deemed to be corrupt and undemocratic and had to be overthrown. America, with the help of the International Monetary Fund (IMF), eventually accomplished its goal in 1998, when President Suharto was toppled.

As it turns out, I know something about the overthrow of President Suharto. In late January 1998, I delivered a series of lectures at Bogazici University in Turkey. One evening, as my wife and I were relaxing at Istanbul’s Ciragan Palace Hotel, I received an urgent message. It was an invitation from President Suharto to visit him in Jakarta.

The Asian crisis of 1997 hit Indonesia hard. The IMF responded by prescribing its standard medicine, forcing Indonesia to allow the value of its currency to begin fluctuating on July 2, 1997. The results were catastrophic. The value of the rupiah collapsed, inflation soared and economic chaos ensued. President Suharto was aware that I had advised Bulgaria and Bosnia to establish currency boards in 1997. And as night follows day, currency chaos was halted in Bulgaria and Bosnia immediately after they adopted fixed exchange rates coupled with the full backing of their domestic currencies with foreign reserves.

President Suharto realized that the IMF’s medicine was killing the patient and that a currency board might prevent a complete collapse. Following our first meeting in Jakarta, he named me his special counselor. Shortly thereafter, I proposed a currency board for Indonesia, and President Suharto endorsed the idea. This sent the Indonesian rupiah soaring. It appreciated by 28 percent against the dollar on the day the news was released. This did not suit the U.S. government and the IMF.

Even though the currency board proposal gathered support from many Nobelists and other distinguished economists — including Gary S. Becker, Rudiger Dornbusch, Milton Friedman, Merton H. Miller, Robert A. Mundell and Sir Alan Walters — it was subjected to a withering and ruthless attack. President Suharto was told in no uncertain terms — by both President Bill Clinton and Michel Camdessus, then the managing director of the IMF — that he would have to drop the currency board idea or forgo $43 billion in foreign assistance.

Why did a currency board for Indonesia cause such a violent reaction?

Mr. Miller, a Nobelist, understood the great game immediately. He told The Christian Science Monitor that the United States wanted to overthrow President Suharto and that a currency board would spoil that plan. Mr. Miller said that the U.S. Treasury knew that a currency board would stabilize the rupiah and the Indonesian economy, and as a result Mr. Suharto would stay in power.

Consequently, the U.S. government used all means available — including the IMF — to oppose the idea. Former Australian Prime Minister Paul J. Keating arrived at a similar conclusion: “The United States Treasury quite deliberately used the economic collapse as a means of bringing about the ouster of President Suharto.”

Former U.S. Secretary of State Lawrence S. Eagleburger embraced a similar diagnosis, too: “We [the U.S. government] were fairly clever in that we supported the IMF as it overthrew [President Suharto]. Whether that was a wise way to proceed is another question. I’m not saying Mr. Suharto should have stayed, but I kind of wish he had left on terms other than because the IMF pushed him out.”

Even Mr. Camdessus could not find fault with these assessments. On the occasion of his retirement, he proudly proclaimed: “We created the conditions that obliged President Suharto to leave his job.”

The neoconservative regime change idea and its use are not new. The only thing that distinguished its application in Iraq was the use of massive military force.

Steve H. Hanke is a professor of applied economics at the Johns Hopkins University and a senior fellow at the Cato Institute in Washington. He served as a senior economist on President Ronald Reagan’s Council of Economic Advisers.