Hanke says stable rupiah key to stability in Indonesia

Hanke says stable rupiah key to stability in Indonesia

SINGAPORE (Dow Jones): Johns Hopkins University economist
Steve Hanke warned yesterday that without stabilization of the
rupiah, Indonesia could expect continued political turmoil and a
greater trend toward use of the U.S. dollar in the economy, which
he said is taking hold throughout the region.

Speaking on CNBC Asia from Baltimore, the former adviser to
past Indonesian president Soeharto said the situation in
Indonesia had "deteriorated significantly" since the government
decided against implementing the currency board system he
recommended in February. He said Indonesia was now in a
"revolutionary" environment.

"They have to stabilize the rupiah. Otherwise, the Habibie
government will meet the same fate as the Soeharto government,"
he said.

Hanke said he was unimpressed with the International Monetary
Fund's current agreement with the Indonesian government, its
fourth, because it doesn't take decisive steps to lift the value
of the country's battered currency.

"The whole region... is slowly starting to dollarize," he
added, "as Latin America did in the 1980s." He indicated that the
phenomenon showed no popular confidence in regional currency
policies. "People are doing it on their own, voting with their
pocketbooks," he said. "Currencies will remain weak as
dollarization increases."