Indonesian Currency Fall Deepens Asia Crisis

The Asian economic crisis spiraled to new depths Thursday as Indonesia’s battered currency lost nearly a quarter of its value in a day and thousands of the country’s residents hoarded supermarket goods amid fears of political and social unrest.

Late Thursday, the White House announced that President Clinton had phoned Indonesian President Suharto and was sending Deputy Treasury Secretary Lawrence Summers to meet with him.

Clinton’s efforts underscored “the importance of Indonesia”--East Asia’s second-most-populous nation--”to the region and to the United States,” an administration official said.

What’s more, administration and International Monetary Fund officials hinted that they could accelerate badly needed financial aid to Indonesia if Suharto agreed to abide by previously negotiated terms of the country’s $43-billion IMF-led bailout.

A $3-billion installment of the bailout package is due to be released to Indonesia after March 15.

Thursday’s currency collapse was triggered by worries that the rescue of Indonesia’s debt-burdened economy is in danger of unraveling because Suharto’s regime had balked at complying with the stringent IMF terms.

The IMF had expected an austerity plan from Suharto for the new year. But the national budget unveiled Tuesday included provisions for modernizing the military and boosting social spending, raising spending overall by about 30%.

Fearing that Suharto had decided that the IMF was asking too high a price for the sprawling archipelago nation’s 200 million people to pay--and that the regime may simply declare a debt moratorium--investors bailed out of Indonesian securities, causing the currency to collapse.

The currency, the rupiah, ended Thursday at a record low of 9,651 to the dollar, down 22% from 7,900 on Wednesday. Last summer, before the Asian crisis erupted, a dollar was worth 2,500 rupiahs.

The main Indonesian stock index slid 12% Thursday, sparking another broad and deep sell-off across Asia and helping to drive the Dow Jones industrial average down 99.65 points to 7,802.62 in heavy trading.

By midday today, however, the rupiah had rebounded to 7,900 to the dollar, reacting to the latest developments--including the IMF’s announcement that Stanley Fischer, the organization’s first deputy managing director, will also go to Indonesia this weekend.

Fischer on Thursday called the rupiah’s plunge “a significant overreaction” and said the IMF would “like to accelerate . . . and strengthen” its bailout plan if Indonesia cooperates.

A White House official said Clinton, in his 20-minute phone call to Suharto--which also included Singapore Prime Minister Goh Chok Tong--”made it quite clear that the IMF program needs to be followed.”

Today in Jakarta, the Indonesian capital, a senior government official said Suharto had pledged to “implement seriously” IMF reforms.

Nonetheless, selling continued in most Asian stock markets today, driving prices sharply lower again.

And the Indonesian setback also overshadowed news that major banks’ negotiations with South Korea on a debt-rescheduling plan were progressing. South Korea’s stock market has rallied in recent days on signs that the IMF’s bailout program for the troubled North Asian country was on track.

On Thursday, rising fears about Indonesia’s economy caused many of the country’s citizens to pack into supermarkets, where they bought anything in sight--ignoring a plea for calm from Indonesia’s military.

As the country’s currency collapses, Indonesia faces the prospect of soaring inflation as foreign goods, including foodstuffs, become more expensive.

One shopper in Jakarta’s Kuningan district said that rice, flour, sugar and cooking oil had disappeared from shelves and that supplies of milk were dwindling fast.

Buyers were not reassured by state television broadcasts of pictures of a national rice stockpile, or by officials’ insistence that the nation’s food supplies remained plentiful despite the need to import rice because of prolonged drought.

“I only wish I could buy more. Who knows what is going to happen?” said one woman as she and her family pushed five shopping carts of groceries.

The country’s political situation has only compounded concerns: Rumors circulated in the capital Thursday that the 76-year-old Suharto may not seek reelection in March after three decades in power. Yet there is no clear front-runner to succeed him in a country where ethnic strife has simmered for decades.

A government official, who asked not to be identified, would only note that Suharto had not announced a decision so far.

In the meantime, the plummeting currency is raising the risk of soaring bankruptcies among foreign-indebted Indonesian companies because each decline in the rupiah increases the value of debts owed in dollars or other currencies.

Indonesian companies may have exacerbated the rupiah’s fall Thursday by rushing to exchange rupiahs for dollars, fearing that dollars will cost even more soon.

“The currency has collapsed because everybody knows Indonesia needs the IMF program,” said Robert Brusca, economist at Nikko Securities International in New York. “But Indonesia is reluctant [to comply with IMF terms] to the point of obstinacy.”

To restore the nation’s credit-worthiness, the IMF is demanding that Indonesia take the same basic steps that South Korea and Thailand are taking as part of their financial bailouts: cut government spending, close ailing banks and reform the banking system to essentially sever close ties between the government and major lenders.

The heavy direct involvement of Suharto family members in the banking business has made for “unique political strains” in the Indonesian government over the IMF’s terms, said Thomas Trebat, emerging-markets analyst at Citicorp Securities in New York.

Among those likely to be hurt by IMF reforms are Indonesia’s economic elite and Suharto’s family and friends. But Suharto’s legacy may depend on his response to IMF demands.

Although Indonesia is a relatively small player on the world economic stage, its huge population makes the possibility of social unrest a major worry for Southeast Asia, including neighboring nations such as Malaysia, Singapore and the Philippines.

Dissent in Indonesia has grown in recent months as students demand greater freedoms and complain about a rubber-stamp parliament.

Some critics believe that the ailing Suharto has lost his touch and has failed his people by not naming a successor. The elections his party won in May were the most violent in Indonesia’s history.

On Friday, the Jakarta Post, an English-language daily, called for Suharto to step down.

Petruno reported from Los Angeles, Pine from Washington. Times staff writer David Lamb contributed to this story from Southeast Asia. The Associated Press and Reuters also contributed.

* TROUBLED NATION: Indonesia’s economy, like that of most developing countries, is a study in contrasts. D3

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Panic in Jakarta

Indonesia’s ailing economy took a turn for the worse Thursday as a fresh-selloff in the stock market sent the Jakarta composite index plunging by 12%. Another big drop in the country’s battered currency, the rupiah, prompted residents to board dollars and groceries against further declines.

Jakarta composite index, weekly closes and latest

Nov. 7: 466.12

Thursday: 347.11

****

Rupiahs per U.S. dollar, monthly closes and latest

Jan. ‘97: 2,375.25

Thursday: 9,651

SOURCE: Bloomberg

Compiled by JENNIFER OLDHAM / Los Angeles Times