Suharto agrees to new IMF package:
IMF Optimistic as Agreement is Reached on New Package for Indonesia

From BBC World Service
17 January 1998

After weeks of turmoil in the Indonesian financial markets, President Suharto today formally endorsed a package of economic reforms drawn up together with the International Monetary Fund.

The head of the IMF, Michel Camdessus was in Jakarta to sign the agreement - and he spoke optimistically about the impact of this latest accord:

Michel Camdessus: This revitalized programme is broad and far-reaching, addressing all the critical problem areas of the economy and deserving the full support of the international community. I am confident that if this programme is implemented with the determination and commitment that I myself have seen over the past two days, Indonesia should be able - soon - to overcome its economic crisis.

So will the markets be impressed this time? East Asia Today's Kathryn Davies put the question to Keith Richburg who covers Indonesia for the Washington Post:

Keith Richburg (Jakarta): So far, at least in Jakarta, the market reaction was mixed. The rupiah was down a bit on the US dollar, in Hong Kong the market was not impressed at all, it dropped about seven per cent. I think the problem is that people have heard a lot of statements in the past about what reforms and what steps will be taken. People want to see action now. They've heard enough commitments and words and they're ready to actually wait until things get done before they're actually convinced.

Kathryn Davies (Studio): How hard hit are the president's children going to be - at least in theory - by this agreement?

Keith Richburg: On the surface, it looks like the children will be hit fairly hard, particularly Suharto's son Tommy. He will be hit because they're going to be removing all the special tax and customs privileges for his Timor national car. In addition he's going to be hit because the monopoly on cloves - the clove trade, which is very important in Indonesia for cigarettes and other items - that's also going to be removed, and Tommy has the monopoly on that trade. One thing to bear in mind though is that the interests of the first family - and that means primarily the six Suharto children - are so wide-spread and so far-flung that although they might get hit on two or three or even a half dozen of their projects, they've still got vast interests in everything from banking to telecommunications, to a US$2.4 billion triple-decker toll road that's being built by the president's daughter, Tutut.

Kathryn Davies: At the other the scale, how badly are the poor going to suffer by the by the phasing out of fuel subsidies?

Keith Richburg: The poor will suffer greatly, and it will be interesting to see the time frame for these things. We knew until this agreement that the president was reluctant to make any of these badly needed reforms before March, and that's the date when he's scheduled to be re-anointed by the constituent assembly for another five year term as president. I think the idea was that they knew that these reforms would hurt, and they would hurt the working poor the most. And they wanted to stave off any possible unrest or demonstrations in the street. The fuel prices were a particular cause of concern because everybody relies on buses to get to work. Also very hard-hit will be sugar and wheat. But they did not mention rice: rice appears to be exempt because apparently the government sees that staple as just too sensitive to lift. But the poor will be hurt: there are going to be lay-offs, there's going to be more recession and I think everyone - when they were announcing this agreement - tried to keep in perspective that this was not really a day for celebration. It was a reminder to people that the tough times were really to come.

Kathryn Davies: The two sides have agreed to set up a new high-level joint committee to oversee the implementation of these measures. Does that suggest the IMF doesn't trust Indonesia to carry these reforms through?

Keith Richburg: I'm not sure it's a matter of trust as much as it is restoring confidence among the population and investors: local and foreign. This new National Economic and Financial Resilience Council will have an IMF person sitting on it as an adviser. I think partially this is a confidence-building measure more than anything else.

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