Indonesia currency board must be ambitious: Hanke<\/p>\n
WASHINGTON (Agencies): A key economic adviser to President
\nSoeharto said the currency board he envisions for Indonesia
\nshould be considerably more ambitious than those in other
\ncountries, the Washington Post reported Tuesday.<\/p>\n
Johns Hopkins University professor Steve Hanke told the
\nnewspaper in an interview that a more ambitious currency board
\nwas essential because of the need to address weaknesses in
\nIndonesia's banking system. He did not elaborate in the story.<\/p>\n
Hanke also said he advised Soeharto to privatize the biggest
\nfive state-owned enterprises as part of the plan.<\/p>\n
"I advised the president that you've got to take the biggest
\nfive; otherwise the markets will be skeptical," Hanke told the
\nPost.<\/p>\n
Soeharto said last weekend the International Monetary Fund had
\nnot helped stabilize the rupiah with its harsh reform program and
\na more broad-based effort was needed.<\/p>\n
The proposed new plan has been dubbed "IMF-plus" because it
\nexpands on the existing arrangement under which the International
\nMonetary Fund was to provide in excess of $40 billion in return
\nfor economic reforms.<\/p>\n
IMF-plus would include large-scale privatization of state-
\nowned companies, a bankruptcy code, reduction and rescheduling of
\nexternal debt and the adoption of a currency board system to fix
\nthe rupiah to a single dollar rate. Firm details have only just
\nbegun to trickle out, however.<\/p>\n
The IMF is objecting to a currency board that would peg the
\nIndonesian rupiah to the dollar because it felt the country was
\nnot yet ready for the move.<\/p>\n
Hanke said Indonesia could support the peg by holding enough
\ndollars to cover the value of all rupiah, in circulation and in
\nbanks, according to the Post report.<\/p>\n
Hanke said Indonesia could get the money it needed for the
\neffort from international institutions like the IMF, through
\nlines of credit extended by private banks, and from wealthy
\ncountries such as Brunei, Indonesia's wealthy neighbor.<\/p>\n
Warned<\/p>\n
In Tokyo, The head of Hong Kong's Monetary Authority (HKMA),
\nthe territory's de facto central bank, yesterday warned Indonesia
\nover its moves towards setting up a currency peg.<\/p>\n
Indonesia would have to meet a number of tough requirements
\nbefore a peg could work, Joseph Yam told a meeting of businessmen
\nhere.<\/p>\n
Hong Kong is the only territory in Asia which now has a peg,
\nwith the Hong Kong dollar linked to the greenback through a
\ncurrency board system.<\/p>\n
"If you run a huge budget deficit, it won't last. If you don't
\nadhere to the discipline of a currency board system, it won't
\nlast.<\/p>\n
"If Indonesia satisfies the preconditions I wish them well but
\nif they don't actually satisfy the preconditions then I think
\nthey should be careful, " he said.<\/p>\n
He warned Jakarta to also avoid a huge balance of payments
\ndeficit, poorly capitalized banks and a lack of banking
\nsupervision.<\/p>\n
Yam said the Asian financial crisis grew from poor supervision
\nof financial liberalization across the region, particularly in
\nIndonesia, Thailand and South Korea.<\/p>\n
There was a lack of efficient "financial intermediation," he
\nsaid.<\/p>\n
Europe<\/p>\n
Meanwhile, a senior French finance official said in Singapore
\nyesterday Europe's participation in a Singapore initiative for a
\nmultilateral scheme to guarantee payment for Indonesian imports
\nis dependent on Indonesia's adherence to IMF-mandated reforms.<\/p>\n
"It can be done if the IMF conditionalities are respected. We
\nare ready to be helpful. We are ready to find the right means,"
\nJean Lemierre, director of the Treasury of France, said at a news
\nbriefing.<\/p>\n
The scheme proposed by Singapore Prime Minister Goh Chok Tong
\nlast month was aimed at helping Indonesia acquire up to 20
\nbillion US dollars in foreign guarantees for imports of basic
\nnecessities.<\/p>\n
"We (France) say there has been one decision taken in London
\nso there has been a clear answer to the Singaporean idea ...
\nThere may be other means to do that. They key questions do not
\nlie in technicalities. The key question is, 'Are the IMF
\nconditions being respected?" he said.<\/p>\n
Severe<\/p>\n
In a related development, U.S. Commerce Secretary William
\nDaley said on Monday he found agreement during a recent trip to
\nAsia that the region's financial crisis appeared to have
\nstabilized apart from the situation in Indonesia.<\/p>\n
"There was general agreement that with the exception of
\nIndonesia, the situation in ASEAN (Association of South East
\nAsian Nations) seems to have stabilized, although there may be a
\nfew more bumps on the road," he told a conference in New York.
\nThe text of his speech was made available in Washington.<\/p>\n
Daley said Thailand and the Philippines seemed to be on the
\nroad to economic recovery and Singapore was "doing well".<\/p>\n
"Indonesia clearly has the most significant problems," he
\nsaid. The currency devaluation made importing food difficult and
\nforest fires were exacerbating the country's problems.<\/p>\n
"Economic unrest is now spilling over into the political
\nrealm, with legitimate fears of widespread ethnic violence," he
\nadded.<\/p>\n
Daley said the United States would take additional measures to
\nalleviate the plight of Asian economies suffering liquidity
\nproblems that have hurt their ability to finance imports.<\/p>\n
"I am suggesting to the President (Clinton) that we need to
\ndevelop additional export financing initiatives that will
\nmitigate the severe credit constraints on importers of U.S. goods
\nand services building on efforts already undertaken by the U.S.
\nExport-Import Bank."<\/p>",
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