RI crisis may spark new disaster<\/p>\n
By Jonathan Thatcher<\/p>\n
MANILA (Reuters): Indonesia's continuing economic problems
\ncould lead to a second crisis in the region, Asian Development
\nBank (ADB) President Mitsuo Sato said yesterday.<\/p>\n
But he said in an interview he saw little chance of
\nflexibility being given to Indonesia over structural reforms it
\nis under pressure to adopt.<\/p>\n
\"I cannot rule out the possibility of a second round of the
\nso-called contagion effect coming this time from a deterioration
\nof the situation in Indonesia,\" he said in an interview.<\/p>\n
\"The early addressing of the issues in Indonesia is quite
\nvital, not only to Indonesia but to other countries too,\" Sato
\nsaid, adding he was very keenly watching planned talks between
\nInternational Monetary Fund and Indonesian officials.<\/p>\n
IMF officials are currently in Jakarta to review reforms
\nagreed under a bailout program before releasing a second tranche
\nof US$3 billion.<\/p>\n
The ADB will not release the $1.5 billion it pledged under the
\ninternational bail-out until the talks with the IMF are settled,
\nSato said.<\/p>\n
But he added that another $2 billion previously pledged would
\nstill go through.<\/p>\n
He saw room for flexibility in macroeconomic targets but not
\nin structural reforms, where Indonesia has been baulking, citing
\nconstitutional impediments.<\/p>\n
\"In this kind of situation, the macro-economy is not that
\nimportant. But when it comes to the question of so-called
\nstructural adjustment, which is more important in this kind of
\ncrisis...I don't think much flexibility can be justified,\" Sato
\nsaid.<\/p>\n
\"This kind of crisis is very different from the old-fashioned
\ncurrent account crisis in which policy prescriptions are (based)
\nalmost solely on macroeconomic targets.<\/p>\n
\"This time the real nature of the turmoil is very much
\ndifferent...it derives basically from the mismatch between the
\nopen capital account and some domestic policy and institutional
\nsettings. We have to take a look at the need for them to
\nstrengthen the financial system,\" he added.<\/p>\n
By contrast, Thailand and South Korea -- the two other
\ncountries worst hit in the Asian currency crisis -- had come to
\ngrips with the challenges and were now on the mend, he said.<\/p>\n
Indonesian officials were quoted as telling a Japanese
\nparliamentarian that Jakarta wanted to implement all but two of
\nthe 50-point program agreed with the IMF in January as part of a
\ndeal for financial rescue.<\/p>\n
Indonesia needs to stabilize its currency as soon as possible,
\nlower interest rates and stimulate the domestic economy, Sato
\nsaid.<\/p>\n
He joined the many opponents of a proposed currency board,
\nsaying it would only worsen the situation.<\/p>\n
\"It is not a good idea,\" he said, urging the country instead
\nto make a priority of restructuring its financial system.
\nAny further regional crisis would be limited to more advanced
\nAsian countries.<\/p>\n
\"You can forget about (contagion in) China, Vietnam, India,
\nMyanmar, Pakistan. These countries have still not opened up their
\ncapital account,\" Sato said.<\/p>",
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