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Currency meltdown panics Indonesians; Residents rush to stock up on food

By Michael Richardson,
in the Toronto Globe and Mail
9 January 1998

President Suharto of Indonesia faced the gravest economic and political crisis of his 32-year rule yesterday as Indonesia's currency and stock market suffered historic declines.

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"While talk of a debt moratorium may be a bit premature, the IMF is clearly concerned that Tuesday's budget was a deviation from its guidelines. This has been exaggerated by concerns about Suharto's position," said Chris Portman, emerging-markets economist at ANZ Investment Bank in London. "The whole situation in Indonesia is now extremely worrying."

In Washington, senior IMF officials said a team of experts will be sent this week to try to speed up a program of economic reform. The visit was originally scheduled for later this month.

"We'd like to accelerate the program and strengthen it, because a lot of people believe the Indonesian government wasn't really committed to the program," Stanley Fischer, the IMF's first deputy managing director, told the Cable News Network.

By the end of June, 1997, Indonesia owed $58.7-billion (U.S.) to the banks, with 59 per cent or $34.66-billion due within 12 months or less, BIS figures showed late yesterday. The collapse of the rupiah has sent the cost of paying foreign currency debt rocketing.

Indonesian military authorities have said publicly in recent days that they expect two million people may soon lose their jobs, and they have vowed to suppress protests.

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On Wednesday, Washington warned Indonesia that it is crucial that it begin complying with the terms of the IMF bailout. Washington thus joined the IMF in sending Suharto a blunt message: If Indonesia does not fulfill its reform commitments, the money will be cut off.

Within the Clinton administration, a debate has already begun over how to handle Indonesia in coming months. Treasury officials have made clear that if it did not comply with terms of the IMF accord, continuing support would undercut the credibility of other IMF bailouts around the world.

Bob Olsen
Toronto bobolsen@arcos.org

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