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.