U.S., Others Press Suharto to Adopt IMF Reforms

Key finance officials from Europe, the United States and Asia descended on this capital city Monday in an attempt to get President Suharto to accept economic reforms demanded by the International Monetary Fund.

Suharto smiled and nodded and said he would be flexible. But the Indonesian leader, who apparently still favors the much-criticized idea of creating a currency board to peg the rupiah at a fixed exchange rate to the U.S. dollar, remained noncommittal.

As Suharto’s new 36-member Cabinet was sworn in Monday, university students continued their on-campus demonstrations against him in Jakarta and in the city of Surabaya. The monthlong protests have generally been peaceful, but Suharto was burned in effigy at one demonstration last week.

The composition of Suharto’s Cabinet alarmed many economists because it is nearly devoid of economists and reformists. Its ranks are filled with old-time loyalists, including one of Suharto’s daughters and his golfing buddy, timber tycoon Mohammed “Bob” Hasan.

“Judging by their track records, most of the people in the Cabinet are incompetent,” said Faisal Basri, a respected economist at the University of Jakarta. Last week, Indonesian markets reacted negatively to the possibility that Suharto would appoint the loyalists, but the rupiah strengthened slightly Monday, and the stock market was up 4%.

The officials who came to Jakarta on separate missions Monday included David Lipton, a U.S. Treasury undersecretary; Klaus Regling, director general of Germany’s Finance Ministry; and Eisuke Sabakibara, Japan’s vice finance minister. Hubert Weiss, the head of the IMF’s Asia-Pacific operations, is due in Jakarta today.

Japanese Prime Minister Ryutaro Hashimoto, whose government has pledged $8 billion to Indonesia’s bailout, traveled to Jakarta over the weekend with an entourage of 50. He left without winning any apparent concessions from Suharto in Indonesia’s standoff with the IMF.

“I am deeply concerned about the economic difficulties which Indonesia now faces and expect President Suharto to make the courageous decision in overcoming the present difficulties,” Hashimoto said.

Indonesian Vice President B.J. Habibie was quoted in the Japanese media as telling Hashimoto that 40 of the IMF’s 50 demands could be implemented soon and that eight could be implemented after some revision. But he said Indonesia could not accept two provisions: dismantling monopolies on the spice trade and on agricultural products (other than rice).

The IMF has delayed a second $3-billion installment, which had been due Sunday, in its $43-billion bailout package because of Indonesia’s sluggish pace in adopting reforms Suharto agreed to in January. The IMF has threatened to pull out of Indonesia entirely if Suharto goes ahead with his currency board idea without first undertaking major economic reforms.

Suharto, who has been in power for 32 years, has given no indication that he will abandon his quick-fix plan to stabilize the rupiah, which has lost 70% of its value in recent months. Most economists say Indonesia does not have sufficient foreign reserves to support the currency at a fixed rate. Many businesspeople, however, favor the currency board because it would enable them to repay their debts at favorable rates.

While Indonesia has wasted precious time in fencing with the IMF over reforms, Thailand has moved quickly to accept an IMF package and is starting to see the light of eventual recovery. Its currency, the baht, had plummeted in value to 52 to the U.S. dollar, but by Monday the rate was quoted at 38 to the dollar, a three-month high.

Thai Prime Minister Chuan Leekpai made what the Thai media called a triumphant trip to the United States last week and won pledges of support from Washington. Thai officials had been both hurt and angered earlier in the year by the Clinton administration’s tardiness in coming to Thailand’s economic aid.

In Washington, Chuan won support for additional IMF financing if needed, $1 billion in trade financing from the U.S. Export-Import Bank and $400 million in aid for electric power projects. President Clinton also agreed to allow Thailand to cancel a $74-million fighter jet deal.