HK urges world action on Jakarta's crisis

HK urges world action on Jakarta's crisis

PARIS (Reuters): Hong Kong chief executive Tung Chee-hwa said on Wednesday Indonesia's financial crisis could have a ripple effect felt around the world and said the international community must resolve the turmoil.

Tung, visiting Paris to boost investor confidence in the territory, said Hong Kong was concerned about a further deterioration in Indonesia even though its trade and investment with the Southeast Asian nation was small.

"The issue of Indonesia needs to be resolved by the international community," he told journalists after meeting French Prime Minister Lionel Jospin.

Tung said any further instability in Indonesia would affect the rest of Southeast Asia but added: "It is not just a question of Hong Kong. I think the ripple effect will be felt all around the world."

Earlier on Wednesday in Jakarta, thousands of students protested noisily as President Soeharto was sworn in for a seventh five-year term and told the nation it had to tighten its belts after 25 years of economic growth that he said "we will never enjoy again".

The economic crisis that struck last July has depreciated the rupiah currency by more than 75 percent and driven up inflation and unemployment, sparking off food riots.

Soeharto has been in confrontation with the International Monetary Fund and major industrialized powers over economic reforms agreed with the IMF in mid-January to allow a bail-out of more than $43 billion.

But in his speech he made no mention of the stand-off nor of a controversial proposal he is considering for a fixed exchange rate through a currency board system, which continues to keep financial markets in a state of confusion.

Tung praised Hong Kong's 14-year currency board, which pegs the local dollar to the U.S. unit, and called it the most effective tool in ensuring currency stability for the territory.

But he declined to say whether he thought it could be a model for Indonesia, which has come in for IMF criticism for considering one.

"I wouldn't recommend it to anyone who is not ready for it," Tung said.

Speaking in London, the Chief Executive of Hong Kong Monetary Authority said on Wednesday a currency board would be "quite a gamble" for Indonesia but would help ease the Asian financial crisis if one were implemented successfully.

Joseph Yam told bankers: "The discipline involved in a currency board system is quite tough." There are certain preconditions that needed to be observed before such a rigid exchange rate system could work successfully.