(FORTUNE Magazine) – Over lunch at the Jakarta Hilton, John Vondras, an affable Coloradan who is US West's top man in Indonesia, ticks off the problems of running a 500,000-line telephone system in a country whose economy is collapsing. First among them: Vondras' joint venture has to repay a $615 million loan in dollars, but it earns revenues in the rupiah. The local currency has lost 75% of its value in the past eight months, which means that even though revenues are up 26% in rupiah terms this year, the company is racking up massive losses in dollars. "In one month," he laments, "you see your net income wiped out before your eyes."

Indonesia's gloom extends far beyond the balance sheet of PT Ariawest International, US West's joint venture with Indonesia's state-owned telecom company. Social unrest is growing. At least five people have died in riots largely directed by the 90%-Malay majority at ethnic Chinese shopkeepers. Food prices are up fourfold since December and still rising. So the easy way out of Vondras' rupiah bind--raising phone rates--can't even be contemplated. "A man worried about filling his family's stomachs just isn't going to use his phone," he says.

A little later, Vondras' cell phone rings. When the call ends, his smile is wry. "Sorry about that," he says, "but there's been a bomb threat at the International School." Three of his children, ranging in age from 10 to 15 years, are in classes there.

Welcome to life under the volcano. For Vondras and thousands of other Western executives who continue to do business in Indonesia, coping with possible terrorism, constant uncertainty, and certain short-term economic pain is now routine. Beyond that daily strain, they and their companies stand to lose everything should the world's fourth-largest country violently erupt, as it did in 1965, when Indonesia's President Suharto first rose to power and hundreds of thousands died in ethnic riots. But while the rest of the world increasingly frets that such a prospect is all too likely, this crowd--like farmers drawn to a volcano's nitrate-rich soil--takes the opposite view. If things don't explode, they figure, the combination of a weak rupiah, a government reluctantly agreeing to open new sectors to foreigners, and Indonesia's inherent long-term potential adds up to a golden opportunity. "It's Capitalism 101," says Vondras. "High risk, high reward."

One key noneconomic factor that gives comfort to those who are betting on stability: The Indonesian armed forces, known as the ABRI. Its nearly half-million men do everything from keeping public order to ensuring that scarce food supplies are distributed to those who need them most. Yes, the 76-year-old Suharto is ailing, and yes, it will be a long time before his country will be able to repay the nearly $140 billion of public- and private-sector debt it owes to foreigners. But as long as Suharto retains the firm backing of this highly versatile, disciplined force--led by General Wiranto, a close presidential aide and also the Defense Minister--his grip on power is likely to stay secure. So never mind that students protesting the regime's crony capitalism get their 15 seconds on CNN (they're largely confined to college campuses by the ABRI) or that the U.S. embassy has advised companies to set up emergency evacuation plans for their staff. "Two, three years from now, there'll still be more than 200 million people here, abundant resources, a growing middle class," predicts Louis Clinton, the local head of the American Chamber of Commerce in Indonesia. "This place remains an exciting opportunity for virtually every U.S. company."

Of course, some changes will have to occur, and soon, or even the ABRI could find it impossible to keep the social unrest fostered by Indonesia's ailing economy from bubbling into the streets. For one thing, the rupiah will have to stop its roller-coaster ride and settle at an exchange rate stronger than the current 10,000 or so to the dollar. At 7,000 to 8,000, says Vondras, "we could still have a business case"--even though that's well below the 2,400 rate that prevailed before last summer's currency crisis struck. What won't do the trick is the controversial panacea of establishing a currency board that would fix the level of the rupiah to the dollar (see box).

Most urgently, of course, Indonesia needs to adopt the economic restructuring that the IMF is pressing for. That includes such steps as disbanding monopolies and special entitlements that have enriched Suharto family members and friends, many of whom are essential partners with the foreign companies doing business here. Although the IMF won't make a final decision on disbursement of the next tranche of payments until sometime in April, signs suggest that Jakarta is at last beginning to play ball. The new minister for state-owned enterprises, Tanri Abeng, for instance, has said he would restructure state firms in line with the IMF's request.

In the vanguard of those betting this volcano won't blow are U.S. multinationals. Since 1987, exports to Indonesia from the U.S. have quadrupled, to about $5 billion, directly providing jobs for more than 60,000 Americans. And U.S. companies have sunk some $9 billion into direct investments in Indonesia--a sizable chunk of the total $190 billion foreigners have invested here. While other nations are more exposed--British companies have $17 billion in direct investments, and the Japanese lead with a $31 billion stake--none have a higher profile than the U.S., a reflection of both America's global superpower status and its leadership role in strong-arming the government to stay on the right side of the IMF.

Indonesia's human and natural resources have long attracted U.S. companies. Goodyear Tire & Rubber Co., first lured by rubber estates developed during the Dutch colonial period, operates a factory established in Bogor in 1935. American oil giants flocked to Indonesia to refine the world's purest oil, and to tap the world's largest reserves of natural gas. "We've been in Indonesia for 30 years," says Barry Lane, Unocal's spokesman, who adds that the California company aims to stay even after Suharto is gone. "Major infrastructure projects are so integrated into a country, it's not like we could pack up our bags and leave at any moment." That's even more the case for Freeport-McMoRan Copper & Gold Inc. of New Orleans, which markets copper, gold, and silver from its huge mines in Irian Jaya province and is the country's largest corporate taxpayer. "Our entire mining resource is in Indonesia," says Freeport spokesman Bill Collier. "We don't have anything else. That's it."

Other U.S. companies doing business here range from KFC fast-food franchises, which have partnered with a Suharto cousin, to Toys "R" Us, to Du Pont, which owns and operates a herbicide factory (for more, see table).

As executives at these and other companies will tell you, despite the currency problems, not all parts of Indonesia's economy are in trouble. In fact, any labor-intensive business that exports to customers paying in hard currency--gold mining, petrochemicals, and textile companies, for example--is reaping the benefits of low local costs. Consider Texmaco Group's garments division, which makes shirts for the popular Ralph Lauren, Van Heusen, and Tommy Hilfiger labels. Its president, Marimoetoe Manimaren, used to figure on a 6% to 8% profit margin on those garments, which are sold for dollars to the U.S. labels. Today, with falling rupiah labor costs, his profit margins are now closer to 10% to 12%. "The polyester blouses I sell to Liz Claiborne, Macy's, Saks, and other labels are even better for me," says Manimaren, a University of Bridgeport MBA who for most of the 1980s was based in New York City's garment district. "Because most of our synthetic fiber is made from local petrochemicals, margins are 16% to 18%, double what I got before." Last year Texmaco exported $100 million in apparel to the U.S., and Manimaren expects to improve on the figure this year. He says Bob Haas, the Levi Strauss CEO, visited his plant a few weeks ago; Levi's has doubled last year's order.

Even some companies that have been hurt by the crisis can see a silver lining. Take the auto industry. Before the current troubles arose, Suharto had granted special tax, tariff, and credit privileges to PT Timor Putra Nasional, a local carmaker founded by Hutomo Mandala Putera "Tommy" Suharto, the president's youngest son. The company planned to produce a sedan called the Timor. Rather than competing with this so-called national car, which because of these government gimmes could have undercut its nearest competitor by 30% to 50%, Ford and Chrysler canceled plans to develop local factories.

But General Motors, which has been making cars locally since 1994, last November bought out its Indonesian partner, a Suharto half-brother named Probosutedjo. It now holds 100% of PT General Motors Buana Indonesia (GMBI), which last year sold 4,071 vehicles. That turns out to have been a smart move. Not only has the IMF deal specifically forced Suharto to withdraw the Timor's special breaks; Kia Motor of South Korea, which had been Tommy's joint venture partner, has itself been bankrupted by Asia's economic crisis. Result: Even though the Timor has been selling for as little as 18 million rupiah (or just $1,800--less than many motorbikes), buyers, skeptical about spare parts and after-sales service, have been staying away. Some 15,000 unsold, and possibly unsellable, Timors languish in a compound near the Jakarta docks. GM, meanwhile, has successfully launched a Blazer sport utility specially designed for this right-hand-drive market.

Of course, the general crisis still leaves Bill Botwick, president of GM's Indonesian operation, struggling with huge headaches. For example, when the exchange rate plunged as low as 17,000 in January, his cars suddenly delivered just one-third their dollar value of a few days earlier. Since then, GM has taken to making monthly price revisions based on predicted exchange rates. (Botwick's top-of-the-line model currently sells for 150.5 million rupiah, or $15,050.) Programs to increase GM cars' local content, now at about 45%, have been accelerated to take advantage of lower local costs. Because GM's local suppliers can boast links to such a respected, dollar-rich company, they have so far had no problems with most Indonesian businesses' biggest stress--getting essential letters of credit, or LCs, from the country's moribund banking system. "My wife has been unable to buy an imported pet food for our two Dobermans because the importer can't get LCs," says Botwick. He's optimistic, though, that the changes sparked by the crisis promise a real turn for the better in GM's fortunes. Says he: "Auto sales will be slow for a couple of years, but in the end we expect to have good market share."

Among foreign investors, the hardest-hit group has been companies that were counting on government backing for large-scale infrastructure projects. Case in point: CalEnergy Co. of Omaha, a big independent producer of geothermal power. CalEnergy has so far invested more than $400 million to construct 400-megawatt geothermal power projects at Patuha, Dieng, and Bali. However, recent government pronouncements have put in doubt Jakarta's commitment to pay the contract price for the power. "We won't really know how the projects will fare until we hear from the new cabinet," says one energy industry analyst, "but the new finance minister might demand a renegotiation."

A U.S.-Japanese consortium led by California-based Edison Mission Energy, which is building a massive 1,220-megawatt coal-fired power station in east Java, may face similar problems. The first unit of the $2.5 billion Paiton I project is scheduled to start producing electricity in December. PT Perusahaan Listrik Negara, the state-owned electrical utility, had pledged to buy the plant's output--and pay in dollars--but it's now unclear whether it will be able to pay anything close to the agreed-upon amounts. In anticipation, Standard & Poor's has already put the project on its credit-watch list.

The rupiah's fall has hurt smaller ventures as well. Marriott International Inc., the property-management company, has placed on indefinite hold a long-standing plan to manage three hotels for a large local realty company. To test the market, however, Marriott agreed to manage Apartemen Pavilion, a central Jakarta serviced-apartments project. One of four towers (133 of a planned 471 units) is up and running with a 50% occupancy rate, but new tenants are hard to come by, and the local company suddenly has no money for advertising. "Discounts weren't in our vocabulary before, but now they are," says general manager Robert Stark. "We'll have to make do with spreading the word by networking, phoning, cold calling."

Finally, there are the real bottom fishers--companies actually raising their ante in anticipation of long-term gains. By and large, the Americans aren't yet among this group. South Korea's largest home-appliance manufacturer, LG Electronics Co., recently paid just $100 for the 51% of a joint venture with PT Astra Electronics that it didn't already own. The Indonesian company, which churns out more than 500,000 TV sets, washing machines, air conditioners, and refrigerators a year, lost $35 million in 1997 as the rupiah plunged. The Koreans' $100 investment has bought them a manufacturing facility--and an unspecified slice of foreign debt.

Regent Pacific, a Hong Kong-based investment house, last month paid just $7 million for 334 two-bedroom, middle-level condominiums and nine luxury units in central Jakarta. Greg Penn of Procon Indah/Jones Lang Wootton, the real estate agent handling the sale, says that over the past six weeks he's also received offers for more than 700 other condominiums with a total $26 million value. While most activity is with individual buyers investing $1 million to $5 million, he says, "we believe the institutional buyer will enter the market in the second half of the year." That's when Penn figures larger, world-class assets may be dislodged from owners at distress prices: premier hotels, offices, and retail shopping centers.

Major investment opportunities are likely to arise soon in the infrastructure field, where the government, under pressure from the IMF, is expected to privatize a host of state-owned companies in the banking, telecommunications, mining, steel, shipbuilding, and aerospace sectors. Even Industri Pesanat Terbang Nusantara (IPTN), Vice President B.J. "Rudie" Habibie's much maligned national airplane manufacturer, which the IMF is urging Suharto to stop subsidizing, is getting some attention as a possible acquisition target. Says a senior Western high-tech industry source: "IPTN has made products for Boeing and the vertical stabilizer for the Indonesian air force's F-16 fighter-bombers. I see it as a facility with a work force of basic training and skills that under appropriate management could be made profitable."

Others see opportunities in the country's vast consumer market, which was growing rapidly before the crisis hit and which is now much cheaper to enter. Says John Meeks, special projects director at PTHM Sampoerna, maker of Indonesia's distinctive clove-flavored cigarettes: "Java [the main island in the 17,000-island archipelago] is a Western consumer-product company's dream: an area the size of Louisiana but with the population of Louisiana, Texas, California, Pennsylvania, Ohio, Illinois, and Florida. Some 60% of the Javanese live in nine port cities, all within 70 kilometers of the ocean and well served by rail." Now with local costs three to four times lower for a Western investor than six months ago, Meeks maintains, "it's definitely time for serious tire kicking."

But is it really time to invest? No one denies that Indonesia is likely to be making unhappy headlines for some time. A severe El Nino drought continues, causing huge forest fires in resource-rich Kalimantan province and serious water and food shortages. Starvation is reported in parts of Irian Jaya, the primitive, easternmost province. Throughout Indonesia, millions are likely to fall below the poverty line again. One senior Western diplomat estimates that Suharto, who is acutely aware that his legacy as a nation builder is at stake, has perhaps a year to show that he's leading the country out of its troubles. And if the President fails? Says the diplomat: "Six to 12 months from now, if there's still a currency problem plus problems on the streets, I suspect you get a situation where thinking people in the ABRI will make a different decision [about continuing to support Suharto]."

Whenever it comes, it's possible the transition to a post-Suharto regime won't prove as explosive as many now fear. History doesn't always repeat itself, as the optimists rush to point out. The late 1990s in Indonesia need not follow the pattern of the late 1960s. Sometimes the storm clouds just gather--and then blow away.

That's what happened, happily, that day recently when John Vondras learned of a bomb threat at the International School in Jakarta. There was a bomb threat, but no bomb. Says school spokesman David Giddings: "The worst that happened was that the students had to spend the afternoon in the sun." Vondras' children were safe.

Still, the one thing certain about life under a volcano is this: Even on days when the sun comes out, it's hard to relax.

REPORTER ASSOCIATES Jeremy Kahn and Lixandra Urresta