Hanke still sees RI currency board

Hanke still sees RI currency board

WASHINGTON (Reuters): A U.S. economist who wants Indonesia to
bring in rigid new rules on currency exchange said yesterday he
thought the controversial idea would go ahead, but the timing was
up to President Soeharto.

Steve Hanke, a professor of applied economics at Johns Hopkins
University in Baltimore, said he spent a total of 10 hours in
talks with Soeharto. Hanke outlined his proposal at the Cato
Institute, a libertarian think tank.

His plan for a currency board would peg the local rupiah to
the dollar and tie cash in circulation to central bank reserves.

The International Monetary Fund says Indonesia's ailing
economy is too weak to cope.

"I think it will go ahead," Hanke said. "I cannot give you a
precise timetable because President Soeharto will decide... I'm
just an economic adviser. What do I know?"

Hanke said last month that a currency board could be
introduced in a matter of weeks. But the idea has fueled
tremendous debate in Jakarta and in Washington, amid doubts about
the strengths of the local banking system.

An Indonesian central banker visiting Chile was quoted on
Thursday as saying a decision would not be made for some time.

"Nothing has been resolved with respect to this," Chile's
newspaper El Mercurio quoted Burhanuddin Abdullah, deputy head of
research on economic and monetary policy at the Bank of
Indonesia, as saying.

"We are studying the consequences of this very thoroughly
because linking the rupiah to the dollar could affect other
sectors of the economy. Until this analysis is made, a decision
will not be taken," he added.

He said central bank reserves were not yet large enough to
introduce the system.

The main critics of the currency board idea have been the rich
industrialized countries which are backing a $40 billion IMF-led
rescue package for Indonesia.

The IMF is assessing the state of economic reforms in
Indonesia before deciding whether to release a further tranche of
its $10 billion share of the bailout.

Monetary sources say the original plans to make a decision by
March 15 are likely to be delayed until after a new government is
confirmed in office.

Hanke did not say if he had advised Soeharto to forget the
idea of IMF funding, but he said he had spoken to investment
bankers in Singapore and Zurich after leaving Indonesia.

"I think that might answer your question," he said, noting
that the Sultan of Brunei, one of the world's richest men, had
met Soeharto last week.

Hanke, who has advised governments in Argentina, Lithuania and
other countries on currency boards, said he last spoke to
Soeharto last Thursday. He expected to return to Indonesia for
more talks after March 11.

Soeharto held two meetings this week with former U.S. vice
president Walter Mondale, who traveled to Jakarta as U.S.
President Bill Clinton's special representative. White House
spokesman Mike McCurry said on Thursday that Clinton and Mondale
would discuss the visit soon.

Soeharto has said he is attracted by the idea of a currency
board as a way to stabilize the rupiah, which has tumbled more
than 75 percent since the middle of last year.