IMF prepares to help RI cope with currency woes

IMF prepares to help RI cope with currency woes

WASHINGTON (Reuter): The International Monetary Fund got ready to bail out another Asian tiger economy on Wednesday after Indonesia sought help to cope with a currency crash.

IMF Managing Director Michel Camdessus said in a statement he welcomed Indonesia's request and measures the authorities were already taking to cope with market pressures.

"The IMF strongly supports the approach that has been followed by Indonesia, which sees this as an occasion to strengthen its economic policies even if fundamentals are basically sound," he said.

The IMF has already made loans available to Thailand and the Philippines after the July 2 crash of the Thai baht currency sent economic shockwaves across Southeast Asia.

The region's tiger economies, once viewed as fast-growing models of economic success, came under sustained pressure.

Speaking for the IMF's largest voting member, U.S. Treasury Secretary Robert Rubin welcomed Indonesia's decision to seek help and said he hoped the body and other institutions would respond favorably.

"We welcome the announcement by...Indonesia that it is working with the IMF, the World Bank and the Asian Development Bank to develop a program to strengthen the financial system and improve the prospects for future growth," Rubin said in a statement.

A Washington-based monetary source said Indonesia was blessed with a healthier economy than Thailand's and might not actually need IMF money. A loan, backed by an economic program, could just be a vote of confidence.

"It is not clear why the market has been so unsettled," he said. "If the market pays attention to fundamentals, I am not sure they are going to need it."

The source said the Indonesian authorities were already doing the right things to cope with the currency pressures. "They are in a fundamentally better position than Thailand, they do not have to reverse course," he said.

The IMF said in its World Economic Outlook, released last month, that it expected the Indonesian economy to grow by 7 percent this year, down from 7.8 percent in 1996.

"Economic fundamentals in Indonesia, Malaysia and the Philippines were generally stronger than those in Thailand at the time of the crisis," it said.

But markets were not convinced. The Indonesian rupiah, trading at around 3,650 to the dollar on Wednesday, has fallen 33 percent since July 1.

The Indonesian request for IMF assistance will focus attention on how to help countries which get into economic trouble or which are hurt by problems elsewhere.

Japan has floated the idea of a special fund to help Asian countries in difficulties. The IMF, reluctant to allow funding which is not linked to strict conditions on economic performance, is wary of the proposal.

Camdessus said the IMF would work with experts from the World Bank and Asian Development Bank to provide technical assistance on reforming the Indonesian banking sector. A second IMF team would look at a broad economic program.

"It is expected that work on a program will be completed speedily for submission to the consideration of the IMF executive board at an early date," he said.

The IMF gave no size for a possible loan package for Indonesia. It made $1 billion available to the Philippines in July and contributed $3.9 billion to a $17.2 billion international bailout for Thailand the following month.

Analysts in Singapore said a loan to Indonesia could be for $4 billion to $6 billion.