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.