Hanke set to propose new rupiah to Soeharto

Hanke set to propose new rupiah to Soeharto

HONG KONG (AFP): Controversial U.S. economist Steve Hanke is
to head back to Jakarta this weekend to sell the idea to
Indonesian President Soeharto of creating a new rupiah on which a
currency board would be based.

"The currency board is not finished as long as the president
has not issued a statement saying so," Hanke, professor of
Applied Economics at the Johns Hopkins University, who has been
advising Soeharto during Indonesia's economic crisis, told AFP
yesterday.

The New Indonesian Rupiah (NIR) would be linked to the U.S.
dollar at a fixed exchange rate and backed 100 percent by foreign
reserves. It would co-exist temporarily with the "old rupiah"
until the situation had stabilized, Hanke added.

Hanke has gained notoriety in the past months for proposing to
Soeharto the idea of a currency board which would peg the ailing
rupiah to a specific currency.

The idea has been criticized by both the International
Monetary Fund and the United States as the wrong solution for the
country's economy at this time.

Hanke said his idea would get over the problem hampering the
implementation of a currency board that Indonesia doesn't have
enough foreign reserves at the moment to cover all the "old
rupiah" in current circulation.

Old Indonesian rupiah (OIR) would stay in people's pockets,
but no more notes or coins based on the old currency would be put
into circulation.

"The OIR printing presses would literally close down," Hanke
said, speaking after giving a presentation to the Credit Suisse
First Boston conference here.

"Using available reserves, Indonesia would establish a
currency board that would issue a new rupiah.

"It would be backed 100 percent by U.S dollar reserves and
trade freely at a fixed rate to the dollar and float against the
OIR," he said.