Australia calls for IMF sensitivity in Indonesia

Australia calls for IMF sensitivity in Indonesia

CANBERRA (Agencies): The Australian government, becoming increasingly concerned about its nearest neighbor's financial instability, yesterday urged the International Monetary Fund to be sensitive in its assistance to Indonesia.

"We believe that the International Monetary Fund's package must be implemented with care and sensitivity towards the impact of that package on social stabilities and social cohesion within Indonesia," Prime Minister John Howard told parliament.

Howard also said he had written to international leaders, including U.S. President Bill Clinton, on the need to organize food aid for Indonesia, which has faced rioting over shortages and soaring prices.

Relations between Indonesia and the IMF have become strained after Indonesian President Soeharto was quoted on Sunday as saying economic reforms prescribed by the IMF were not in tune with the country's constitution.

The IMF has delayed the payment of about US$3 billion, part of the total US$43 billion rescue package for Indonesia, until April because of Indonesia's pre-occupation with politics as it forms a new government.

The IMF and finance markets have also rejected moves by President Soeharto to introduce a currency board to peg the falling rupiah to a fixed exchange rate.

"We do understand the concern of the Indonesian government to stabilize the rupiah," Howard said.

"I hope that the IMF review can be quickly concluded and that a productive partnership between the IMF and the new Indonesian government can be developed as quickly as possible."

Foreign Minister Alexander Downer said earlier on Monday he believed the IMF delay was manageable, but warned of serious consequences if Indonesia and the IMF refused to co-operate.

"If Indonesia were to walk away all together from the IMF, I think the economic consequences for Indonesia would be very serious," Downer said.

"On the other hand, I don't think it would be appropriate for the IMF just to walk away completely from Indonesia, so we do want the relationship to remain one that is in place."

The IMF said on Friday a successful review of the first tranche of US$10 billion was needed before the fund could hand over the second tranche, originally due on March 15.

It said the review would not be discussed until April.

Howard said he had written to international leaders urging food aid support for Indonesia.

"Over the past two weeks I've discussed the matter with the Prime Minister of Singapore (Goh Chok Tong) and with the President of the World Bank (James Wolfensohn), particularly in the context of organizing food aid for Indonesia," Howard said.

"I've also written again on the subject to President Clinton, the Prime Minister of Japan Mr Hashimoto and also to President Soeharto himself."

Howard said his treasurer, Peter Costello, had also been in contact with IMF managing director Michel Camdessus over the Indonesian rescue package.

Australia has contributed US$1 billion to the package and late last month began talks with Indonesia about an emergency food aid program.

Australia said yesterday it will underwrite up to US$380 million (US$253 million) in wheat exports to Indonesia to help feed its people as the IMF delayed bailout funds for the stricken Asian giant.

Prime Minister John Howard told parliament that the exports would be guaranteed through the government's Export Finance Insurance Corporation (EFIC) in a move which he said would benefit both Australia and Indonesia.

"It will secure Australian jobs, but it will also be of benefit to the ordinary people of Indonesia," Howard said.

Australia agreed in January to underwrite exports to Indonesia on a case by case basis because of what it saw as bid by U.S. exporters to exploit the crisis by grabbing traditional Australian markets for agricultural products.

But the latest move comes amid fears that Indonesian buyers will be unable to meet payments because of the plunging Indonesian rupiah.

Japan warns

Meanwhile, Japan warned yesterday it may reconsider aid to Indonesia if the government fails to abide by the IMF reform package to revive its economy, a vice trade minister said.

"The IMF framework is right in its direction," Vice International Trade and Industry Minister, Osamu Watanabe, told a news conference.

"Japan may find it difficult to provide assistance," if Indonesia fails to commit itself to the reform program, he warned.

Indonesia has already received about three billion dollars from the IMF under a $43 billion international rescue package aimed at restoring confidence and stability to its markets and economy.