CBS critical for RI survival: Hanke

CBS critical for RI survival: Hanke

JAKARTA (JP): President Soeharto's currency board advisor
Steve Hanke warned yesterday that Indonesia's economy would
collapse within four months if the government did not introduce a
fixed exchange rate regime as soon as possible.

Sjahril Sabirin, the new governor of Bank Indonesia, however,
reasserted yesterday the government was still studying the fixed
exchange rate system and that there was no date set for its
introduction.

"We are always in consultation with the International Monetary
Fund," Sjahril said after his installation by Soeharto at the
State Palace yesterday morning.

Sjahril said the rupiah rate against the U.S. dollar, which
closed at 8,900 yesterday, was too low and was debilitating to
the country's economic development.

Hanke, an American economist from John's Hopkins University,
contended that speed was the essence for the CBS plan, warning
that the country's economy could be dead within four months.

CBS is a monetary regime based on an explicit legislative
commitment to exchange domestic currency for a specified foreign
currency at a fixed exchange rate.

Sjahril, 54, formerly a managing director at Bank Indonesia,
the central bank, replaced Soedradjad Djiwandono who was
honorably dismissed on Feb. 11, two weeks before his tenure was
supposed to end.

Hanke talked to reporters yesterday morning after he emerged
from a meeting with Soeharto at the President's Jalan Cendana
residence.

According to Hanke, he and the President also discussed the
technical details of the currency board plan at the Cendana
residence Wednesday evening.

Indonesia's sudden move on a currency board system (CBS) has
drawn international opposition from the International Monetary
Fund (IMF), members of the Group of Seven (G-7) top industrial
countries and the European Union.

Warning

IMF managing director Michel Camdessus has warned that the IMF
might discontinue its US$43 billion rescue program for Indonesia
if the government pushes ahead with its fixed exchange rate
scheme at this point in time.

"You should do it as soon as possible," Hanke said in reply to
a question as to whether Indonesia should wait for four months as
suggested by the IMF.

"Well, I did stress this morning (to Soeharto) that the speed
of action is important. But as to the question on when CBS would
be introduced, you should ask that to the President and the
legislators," he added.

But he warned that "within four months, your economy would be
dead because there is nothing to do."

Hanke was appointed early this month to the President's
Economic and Monetary Resilience Council, which is in charge of
overseeing the implementation of the IMF-arranged reform package.
Indonesia agreed to the package on Jan. 15 as a condition to the
US$43 billion bailout program it arranged with the IMF and other
multilateral institutions and governments.

Hanke said he did not see any other alternative for Indonesia
other than introducing a CBS as soon as possible.

Hanke further reiterated his argument that without a stable
currency, which was possible now only under a CBS, Indonesia
would not be able to implement the reform measures.

He said he has discussed the CBS plan with the IMF team here
and has asked them to clarify why they believed Indonesia was not
ready to adopt a fixed rate system at this time.

Camdessus said in Moscow yesterday he hoped Indonesia's
economic situation would quickly normalize.

"I hope we will stabilize Indonesia soon but nobody knows if
this will happen again in another place," he was quoted by
Reuters as saying at a briefing.

The U.S., however, reiterated its opposition to Indonesia's
CBS plan yesterday, arguing that the IMF rescue program should be
the top priority for Indonesia at this moment.

The U.S. State Department on Wednesday urged President
Soeharto to stick to economic reforms prescribed by the
International Monetary Fund, warning that a proposed currency
board was too risky now.

"Both the IMF and G-7 states have expressed some concern about
the risks involved in moving ahead with the currency board in the
current context," State Department spokesman James Foley told
reporters.

"We believe that Indonesia needs to continue to work closely
with the IMF, to listen to the IMF, and that's really the
critical element in restoring economic health in Indonesia," he
added.

"We regard Indonesia as a nation of critical importance in the
region and beyond," Foley said. "And we believe we have not only
significant economic, but also security interests in a stable,
prosperous Indonesia."

In Singapore, United States Commerce Secretary William Daley
also reaffirmed yesterday his government's stance that Indonesia
must implement the economic reforms prescribed by the IMF to get
its ailing economy back on track. (prb)