When Transparency International produced its list of the most corrupt world leaders of all time in 2004, those rotten laurels went to General Suharto, who TI estimated had looted between $15bn and $35bn from Indonesia during his 31-year rule as president.

That would be ignominy enough for most. But Suharto also stood accused of numerous other crimes and acts of tyranny: of ordering the massacre of 500,000 suspected communists after an attempted coup in 1965, which itself was widely thought to have been engineered so that Suharto could intervene to "restore" peace. Of illegally invading East Timor, causing at least 100,000 deaths over the time his New Order regime occupied the former Portuguese colony. Of systematic human rights violations, suppressing democracy and freedom of speech . . . the gruesome list goes on.

No wonder that when he died in January 2008, a New Statesman leader concluded: "We regret that, on this occasion, we must speak harshly of the dead. Very harshly."

So it may seem astonishing that not three years later, and just over 12 years since his rule was finally brought down and democracy introduced to Indonesia for the first time since 1955, the government is proposing that the former dictator be declared a "national hero".

Suharto's is one of 18 names put forward by the social services ministry that will have to be vetted by President Susilo Bangbang Yudhoyono, whittled down by a committee, and then formally awarded by SBY, as the president is known, on National Heroes Day – 10 November.

Already there are suggestions that SBY could sit on the fence, by not rejecting Suharto's nomination outright, but instead putting it off for a couple of years until he stands down from the presidency. For support for Suharto's candidacy is not in short supply. It might be expected that Golkar, the party set up as a vehicle for Suharto supporters so that they could claim they "won" elections under his regime, would come out in favour of the move.

But so have the leaders of the Prosperous Justice Party, PKS, self-proclaimed Islamists who would never have been allowed to take part in government (as they do now) under Suharto, who imposed secularism and kept the religious parties quiescent and in their place.

How could this monster be rehabilitated so quickly? Earlier this year in Jakarta, I interviewed Fadli Zon, secretary general of Gerindra, the Great Indonesian Movement Party. "In the west you remember everything," he told me. "Here, we forget very easily."

Suharto, he said, "had good intentions". The former dictator tried to bring "stability, growth and redistribution of wealth". Fadli compared him to other successful regional strongmen, "like Lee Kuan Yew, Dr Mahathir, Hu Jintao, Deng Xiaoping". Even the corruption, he suggested, was not so bad.

"Then it was centralised," he said. "Only Golkar, the Suharto family and the military benefited. Now it's been decentralised – it's everyone. If Suharto was corrupt, who's not corrupt in Indonesia today?"

Amnesia has its uses. There is no doubt that Muslim groups, long vying for power pre-1965, were happy to take revenge for earlier communist-wrought massacres when hundreds of thousands died at the beginning of Suharto's takeover.

Many now at the top of politics served under the New Order regime – Gerindra's nominee for the presidency was Prabowo Subianto, a former general married to Suharto's daughter, while Golkar's vice-presidential candidate in last year's elections was General Wiranto, who also served under Suharto and has, like Prabowo, been accused of human rights violations while in uniform.

And compared to dictatorship, democracy can be messy and disorganised. Certainly, it can appear that way to the many millions of Indonesia's poor, for whom the freedom of the ballot may seem scant compensation for the disruption of their previous lives under Suharto. A ridiculously rosy rewriting of the past? Perhaps. But it is true that, for much of Suharto's rule, Indonesia, by contrast, appeared to be on an upward trajectory. As the novelist and poet Laksmi Pamuntjak puts it:

Suharto's role in creating rapid economic growth in Indonesia is indisputable. For most of his 30-year rule, our country experienced a significant growth and industrialisation, and there was remarkable progress in people's welfare. Infant mortality declined, public infrastructure was overhauled. Education, health care and living standards improved greatly. Despite the systemic corruption, economic inefficiencies and the hubris of Suharto's children and cronies, poverty was reduced dramatically.

Laksmi, whose novel The Blue Widow concerns the prison island of Buru where thousands of communists and suspected sympathisers were held without trial or charge for over a decade under Suharto, is being admirably fair in conceding this. She is no fan of the former dictator. She adds:

On the other side of the equation, those who were evicted to make way for big infrastructure projects or whose lands were forcefully seized or acquired at unfair prices in the name of development suffered many losses. During Suharto's reign, dissent was violently crushed, human rights routinely abused, press freedom severely curtailed. There is a formidable list of extrajudicial killings, illegal detentions, kidnappings and tortures, suppression of legitimate protest, gender violence and other injustices Indonesians expect to see addressed or redressed. Not to mention accounts of systems of political imprisonment, banning, civic disenfranchisement, stigmatisation and official harassment that nurtured fear, silence and self-censorship in our country for decades.

Given that President Obama is expected to arrive in Indonesia on his Asia tour around 9 or 10 November, one imagines that SBY will wish to avoid honouring such a reviled figure as Suharto at the same time. It seems likely that the US president would be among the many who share Laksmi's view on the old tyrant: "I see no redeeming feature in him whatsoever."

Baffling and incomprehensible though it may be to us in the UK, however, there are many in Indonesia who do.

The rehabilitation of this monster has officially begun.