Clinton consults with Soeharto about bailout

Mon, 16 Feb 1998, 00:00 WIB | Source: REUTERS

WASHINGTON (Reuters): President Bill Clinton spoke with
Indonesian President Soeharto for about 30 minutes by telephone
on Friday night, a White House official said on Saturday, amid
reports a bailout for Indonesia faced potential cutoff because of
a disagreement about economic policy.

Clinton telephoned Soeharto "to go over the current situation
with respect to Indonesia," the White House official said without
providing any details about the substance of their conversation.

But a report on Saturday in The Washington Post said the head
of the International Monetary Fund had warned in a letter of cut
off in bailout funds for Indonesia because of dispute about how
to revive its battered economy.

IMF Managing Director Michel Camdessus' warning was contained
in a letter to Soeharto, specifically criticizing the possibility
that the government was considering radically changing the
country's monetary system to fix the rupiah's value against the
U.S. dollar, the Post said.

But an IMF official in Washington had no comment on the Post
story and declined to provide a copy of the letter.

Meanwhile, Indonesian House Speaker Harmoko said in
Pandeglang, West Java, yesterday that all factions in the House
fully supported the government plan on CBS.

"I have talked to all the four factions at the House and all
come out in support of CBS as they are confident the system will
stabilize the rupiah rate and restore certainty for economic and
business activities," Harmoko was quoted by Antara as saying.

The Washington Post said it had obtained a copy of Camdessus'
letter in which the IMF chief warned he would recommend the 182-
nation organization suspend a rescue effort worth more than $40
billion intended to help Indonesia regain economic stability.

"In the present circumstances... if a currency board proposal
were adopted, we would not be able to recommend to the IMF Board
the continuation of the current program because of the risks to
the Indonesian economy," the Post quoted Camdessus.

"This would be a very unfortunate development, as it would
shrink even further the reserve basis for the currency board and
further undermine its very slim chance of success," Camdessus was
quoted as saying.

The IMF is scheduled to disburse $3 billion to Indonesia in
the middle of next month, after a review of its compliance with
terms agreed for the international rescue effort.

Indonesia, Thailand and South Korea each are receiving
multibillion-dollar international bailouts under the auspices of
the IMF.

As the Indonesian rupiah has plummeted in value, signs have
increased that Soeharto favored moving to a Hong Kong-style
currency board to fix the rupiah's value against the dollar as
advocated by U.S. professor Steve Hanke, recently appointed a
special adviser to an Indonesian economic policy committee,

Little enthusiasm has been expressed for such a proposal by
key IMF member countries, with both the United States and Germany
saying they felt it was premature for Indonesia.

But none has warned so bluntly as Camdessus that Indonesia
faced a potential cutoff of funds if it went ahead with a
currency board.

Australia

In Canberra, Australian Treasurer Peter Costello said
yesterday the best way for Indonesia to stabilize the rupiah was
through the International Monetary Fund program rather than
through a currency board.

"If they follow that (IMF) program, and if they adhere to that
program, that is their best opportunity to stabilize their
currency," Costello told Channel Nine television when asked about
the currency board proposal.

Australia has pledged US$1 billion to the IMF package for
Indonesia when it was put together last year, and Costello
reiterated the government's position that the funds were
conditional on compliance with the IMF program.

"I think that in Indonesia it's the IMF program which is going
to give international confidence, and I believe that the
Indonesian authorities should be following that program and not
departing from it," he said.

That included cleaning up the banking system, running a good
budgetary policy and ensuring Indonesia had the currency policy
discussed with the IMF, Costello said.

"If they depart from that program, and this is all about
confidence, a lot of people in the international community will
take a second look," he said.

Costello said the financial instability was spilling over into
social instability, and it was important to get the economy back
on track to prevent further unrest.

"There are obvious problems in Indonesia and it will take now
a great deal of political improvement to deal with that, but the
basis of it will also be improving the economy," he said.