EU warns new turmoil if RI does not comply

EU warns new turmoil if RI does not comply

EDINBURGH (Reuters): European Union foreign ministers warned on Friday that Indonesia's refusal to comply with an IMF reform program risked triggering a fresh bout of financial turmoil throughout Asia.

Their envoy to Asia, Britain's junior foreign minister Derek Fatchett, told the 15 ministers at a meeting in Edinburgh that Indonesia's non-compliance with the International Monetary Fund (IMF) program was taking in into "almost uncharted waters."

"There was a real fear expressed in the region, and around the table today, that we might have the danger of a second wave of lack of confidence if Indonesia does not commit itself to the IMF program," Fatchett told reporters afterwards.

He said the EU and Indonesia's neighbors, whom he visited last week, feared a "contagion effect" if Jakarta continued to resist the IMF's recipe.

"That's the concern," said Dutch Foreign Minister Hans van Mierlo. "I don't know if we making this feeling public means that he (Indonesian President Soeharto) is going to get the message, but that is the feeling."

Fatchett said all 15 EU ministers agreed on the crucial importance of Indonesia's compliance with the IMF plan. Soeharto had to realize the IMF was "the only show in town" and the only route back to financial stability and financial confidence.

"The Indonesian authorities were maybe under the wrong impression that there could be a quick solution to Indonesia's problems, perhaps they were looking for a quick fix," Italian Foreign Minister Lamberto Dini told Reuters.

"Not all at the political level (in Jakarta) fully understand the functioning of the markets, that markets cannot be dictated to but can only be persuaded. And to be persuaded you need to take the right measures. That is a notion that is perhaps not quite clear as yet."

Dini said Indonesia's leaders must understand that the EU wanted to help but "support is also based upon acceptance of the program with the IMF and there is no alternative to that."

Soeharto, inaugurated for a seventh five-year term on Wednesday, has been at odds with the IMF and major Western countries over economic reforms agreed with the Fund in mid- January in return for a bail-out of US$43 billion.

IMF managing director Michel Camdessus restated the Fund's opposition to Indonesia's plans to introduce a currency board, which would fix the exchange rate, saying that reforms to the economy and fragile banking system were essential first.

But he still hoped the IMF could soon release another $3 billion installment of the overall rescue package. The IMF said last week it was putting the loan installment on hold until political and economic developments in Indonesia became clearer.

The stand-off is serious enough for Japanese Prime Minister Ryutaro Hashimoto to make a rushed visit to Jakarta this weekend while the U.S. Treasury is sending senior official David Lipton for talks.

The EU ministers agreed that Fatchett should return to the region after the ASEM summit of European Union and Asian leaders in London from April 2 to 4.

In his report on meetings in the region, Fatchett told the EU meeting that Singapore, Thailand and Malaysia were all starting to see "light at the end of the tunnel" after last year's financial turmoil.

He also said Indonesia dominated a two-hour lunchtime discussion by foreign ministers on the aftermath of the Asian financial crisis and its potential impact on EU economies.