Germany's appeals against CBS plan<\/p>\n
JAKARTA (JP): German Finance Minister Theo Waigel has said he
\nfully understands Indonesia's objectives in introducing a
\ncurrency board system (CBS) to stabilize its currency, but that
\nsuch a system is not viable at this point in time.<\/p>\n
Waigel said yesterday a CBS, which would peg the rupiah to a
\nfixed exchange rate with a foreign currency, was only good in the
\nlong term as the country did not currently fulfill the necessary
\nrequirements for such a scheme.<\/p>\n
\"There is no alternative to IMF reforms,\" he told the media
\nafter a meeting with President Soeharto and economics ministers.<\/p>\n
\"It is better for Indonesia to proceed with the reform
\nprograms agreed to with the IMF... there is no alternative to
\nthe IMF reform programs,\" Waigel said.<\/p>\n
He cited huge foreign reserves, a sound banking industry,
\nabolition of monopolies and adequate legislative infrastructure
\nas some of the basic requirements for CBS operations.<\/p>\n
The German finance minister arrived here yesterday as part of
\na tour that included South Korea and Thailand. He met immediately
\nwith Soeharto and Finance Minister Mar'ie Muhammad separately.<\/p>\n
Waigel said Soeharto listened attentively to his views which
\nalso represented those of other members of the Group of Seven
\nindustrialized countries.<\/p>\n
He added that German companies in Indonesia also were
\nnervously waiting for firm implementation of the International
\nMonetary Fund (IMF)-sponsored reform package.<\/p>\n
In a related development, President Bill Clinton is defending
\nthe IMF rescue program for stabilizing and restoring Indonesia's
\neconomy to a sound, robust growth path.<\/p>\n
\"I think I'm making it quite clear that the president stressed
\nto President Soeharto the importance of making a sustained effort
\nthat would lend credibility to the work the IMF is doing in the
\ncountry,\" White House spokesman Mike McCurry was quoted by
\nReuters as saying in Washington.<\/p>\n
President Clinton spoke to Soeharto Friday night by telephone
\nto add his voice to a chorus of IMF and other international
\nopposition to a Hong-Kong style currency board for the rupiah,
\nfearing it would send Indonesia's economy into a tailspin.<\/p>\n
\"The president did discuss the currency board, among other
\ntopics,\" McCurry said. \"There are a lot of complexities and
\ntechnical issues that have to be addressed before we think a
\ncurrency board would be feasible.\"<\/p>\n
Treasury Secretary Robert Rubin on Tuesday also urged
\nIndonesia to remain faithful to IMF reforms in order to win back
\ninvestor confidence in its financial future.<\/p>\n
In comments to reporters following a speech in Washington,
\nRubin said: \"I think what you need in Indonesia is... a
\nsustained implementation of a (IMF) reform program, sustained
\nover a sufficient period of time and with enough evidence of
\ncommitment so that international financial markets have enough
\nconfidence in the institutionalization of that regime.\"<\/p>\n
IMF managing director Michel Camdessus has already warned that
\nits 43-billion-dollar rescue package for Indonesia could be
\njeopardized if Soeharto persists with plans to create the
\ncurrency board.<\/p>\n
Rubin said the abolition of monopolies controlled by
\npoliticians, an end to subsidies on basic commodities and a
\nfinancial sector overhaul was the best way to restore confidence
\nin the economy and the currency.<\/p>\n
In Tokyo, a delegation of Japan's ruling Liberal Democratic
\nParty which just returned from a visit to Asia said in a report
\nyesterday that the establishment of a currency board for the
\nrupiah would not be appropriate at the moment.<\/p>\n
The report said the delegation met Foreign Minister Ali Alatas
\nand exchanged views on the possible establishment of a currency
\nboard system in Indonesia.<\/p>\n
\"We pointed out that the currency board system would not be
\nappropriate for Indonesia at the moment,\" the report said.<\/p>\n
It added that the delegation told Alatas that Indonesia should
\nconsult fully with the IMF and other nations, such as the United
\nStates and Japan, before implementing the system.<\/p>\n
In New York, U.S. credit rating agency Moody's Investors
\nService said on Tuesday that a CBS would not address Indonesia's
\nunderlying problems.<\/p>\n
Jakarta will need to deal with a massive stockpile of
\ncorporate debt, a deeply troubled banking system and shattered
\nconfidence in the country's finances, which would not be cured by
\nthe implementation of a currency board, Moody's analysts told
\ninvestors in a teleconference.<\/p>\n
\"It doesn't address the underlying problem that Indonesia
\nfaces,\" said Vincent Truglia, managing director at Moody's. \"This
\nis why you're seeing so many critics of an Indonesian currency
\nboard at this time under these circumstances.\"<\/p>\n
The establishment of a CBS would not change the fundamental
\nfactors behind the severe loss of confidence in Indonesia's
\nfinancial markets, Moody's said.<\/p>\n
\"Without these underlying factors being addressed, the
\ncurrency board system would do little to prevent further capital
\noutflow, thereby causing a period of very high interest rates and
\nfurther problems with the banking system,\" said Steven Hess,
\nsenior analyst at Moody's.<\/p>\n
The operation of a CBS would also appear to be incompatible
\nwith Indonesian government guarantees to support bank deposits,
\nHess said. (rid)<\/p>",
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