U.S. Presses Indonesia With Advice on Economy

The United States began a diplomatic full-court press Sunday aimed at persuading Indonesia to carry out economic reforms mandated by the International Monetary Fund, to help stabilize the Asian nation’s hard-hit financial markets and to prevent the panic there from spreading to other countries in the region.

But by midday today, most Asian stock markets were sharply lower once again, with heavy selling of shares in Hong Kong, Singapore, Taipei, Taiwan, and Shanghai in particular. Many Asian currencies also continued to decline.

A team of senior U.S. officials headed by Lawrence Summers, deputy secretary of the Treasury, conferred with Singaporean leaders here Sunday evening and early today before flying to the Indonesian capital, Jakarta, to meet with President Suharto.

The U.S. envoys, dispatched by President Clinton after he talked with Suharto by telephone Thursday, have one central message: Indonesia must follow the IMF’s prescriptions or it will continue to see Indonesia’s currency plunge on foreign exchange markets and its stock market reel.

Singapore has close economic and political ties with Indonesia, and the Clinton administration is hoping that the government here will help press Suharto to make the kinds of economic reforms that the IMF wants to see.

Although some analysts have speculated that the IMF and the United States might speed up their lending to Indonesia if it adopts the prescribed reforms, U.S. officials are said to believe that additional money would not help. Indonesia already has enough reserves to cover its financial needs.

Instead, monetary officials have said, the Suharto government must regain the confidence of the world’s financial markets by, among other measures, shoring up its banking system and paring back spending on expensive construction projects. Singaporean officials indicated Sunday that they share that view.

The IMF already has assembled a $43-billion rescue package for Indonesia. If Suharto balks, as he hinted he would in a speech early last week, the 181-country IMF is expected to hold up any further installments, leaving Indonesia’s economy at the mercy of the world’s financial markets.

Suharto is under increasing pressure at home to comply with the IMF program. Opposition leaders and senior members of his own armed forces have suggested openly that the 76-year-old leader, who has ruled Indonesia since 1965, should step down. Indonesia is slated to hold elections in March.

The IMF’s second-highest official, Stanley Fischer, was in Jakarta on Sunday and today conferring with government leaders there, and Michel Camdessus, managing director of the international organization, is due to arrive later this week. The U.S. mission is designed to pave the way for Camdessus’ visit.

Fischer told reporters today that he had made some progress in meetings with Suharto and other Indonesian officials. Fischer gave few specifics but said the two sides had reached an agreement on what was to be done, according to Reuters news service.

Suharto agreed over the weekend to review some pending construction projects that he placed back on the books after the IMF loan was approved, but he apparently made no final decision on them.

Summers met Sunday night with Richard Hu Tsu Tau, Singapore’s finance minister, and with former Prime Minister Lee Kuan Yew, the country’s longtime patriarch. He met with Prime Minister Goh Chok Tong this morning before flying to Jakarta.

Summers and his team are slated to travel to several other financially troubled Asian nations, including South Korea, Thailand and Malaysia, but their aim in those countries is to confer with authorities to make sure the countries’ recovery efforts are on track.

The U.S. delegation includes two senior State Department officials--Stanley Roth, assistant secretary for East Asian affairs, and Al Larson, assistant secretary for business and economic affairs--and Sandy Kristoff, a staffer on the National Security Council. They are due to return to Washington on Saturday.

Despite the urgency that the administration is attaching to Summers’ Indonesian visit, the tone of the mission is being kept low-key to avoid any appearance that Suharto is being backed into a corner--a move that some fear might force him for political reasons to reject the IMF’s demands.

In a statement after Sunday night’s meetings in Singapore, Summers stressed that the group had come to Asia “to consult . . . on economic policies and to urge sound policies that can promote confidence and stability.” He declined to say any more about his sessions with officials here.

The trip was put together hastily--in a few hours--as a diplomatic show of force after two days of emergency meetings last week by Clinton’s top economic and foreign policy advisors. Clinton made a show of personally ordering the team to visit Indonesia.

The visit is an important one for the administration. With full backing from the United States, the IMF has put together billions of dollars of rescue programs for a number of hard-hit countries in the region, and Washington has joined other rich nations in pledging additional loans.

So far, however, the international rescue effort has had limited results. While South Korea has begun putting its financial house in order, Thailand has only just gotten started, and Indonesia and Malaysia are lagging. Meanwhile, Asian financial markets still have not been stabilized.

The Asian countries already have suffered serious economic setbacks in recent weeks, for the first time encountering widespread bankruptcies, massive layoffs and panic buying by ordinary citizens. Indonesia also has experienced some social unrest.

U.S. officials fear that unless the rescue effort begins to show results soon, the economic situation in the region could worsen, sparking political instability and intensifying the economic impact on industrial countries, including the U.S.

There also have been fears that Indonesia might declare a debt moratorium, enabling its banks and corporations to suspend repayment of the loans they have secured from foreign investors--a step most Western analysts contend would spur more turmoil in the markets.

By far the most pressing item on policymakers’ agendas is to help stabilize the currency and stock markets in Indonesia and other Asian countries so that government officials there can start restructuring their economies to strengthen their financial systems.

International monetary officials say Indonesia has balked at carrying out several items on the IMF’s reform list, including cutting back on spending, restructuring its banking system and scrapping several construction projects that would benefit the Suharto family.

Analysts say Suharto has sought to postpone increasing fuel prices--and other politically painful steps needed to bring the budget into line--until after the March elections, but the delay has drawn an adverse reaction from financial markets.

The Indonesian currency, the rupiah, is far below its level of last summer, making imports more expensive and increasing the cost of foreign loans, and the stock market has been plummeting almost daily. The markets improved briefly after the U.S. visit was announced.

The $43-billion rescue package for Indonesia includes $10 billion from the IMF, $8 billion from the World Bank and Asian Development Bank and $15 billion in contingency loans from the United States and other industrial nations. The U.S. share of that is $3 billion.

The IMF already has disbursed about $3 billion of the $10 billion it has pledged, but the remainder--along with the contingency monies from the U.S. and other countries--is not expected to be paid unless Indonesia adheres to the policy reforms it has agreed to make.

Clinton is likely to face a barrage of criticism in Congress when lawmakers return for the new session later this month. Conservative Republicans and liberal Democrats have argued that the administration should not be using taxpayer dollars to lend to countries that are in financial trouble.

Times staff writer Tom Petruno contributed to this report.

* STOCKS SINK: Asian stocks and currencies decline sharply again today. D1