IMF says it will be flexible on Indonesian reforms

Thu, 12 Mar 1998 | Source: REUTERS

WASHINGTON (Agencies): The International Monetary Fund (IMF), sending a conciliatory message to President Soeharto, said on Tuesday it was ready to tailor its economic program for Indonesia to take human suffering into account.

IMF First Deputy Managing Director Stanley Fischer said the Washington-based lending agency was prepared to adjust the terms of Indonesia's reform program because circumstances had changed.

"There is reason for flexibility," Fischer told a news conference, saying the fund would weigh humanitarian issues in deciding when to release another installment of its $10 billion loan to Indonesia.

But former U.S. vice president Walter Mondale doubted Soeharto's willingness to implement the necessary reforms.

Many Western countries fear withholding bailout funds could trigger riots and ethnic violence and deepen poverty in the country of 200 million people. Australia has led a chorus of those saying the tough IMF reforms could fuel civil unrest.

"We are mindful of the potential tragic consequences of events taking place in Indonesia," Fischer said. "We are at the time when the essential need is to deal with...major humanitarian problems that could be arising there."

The IMF has said its board would not be able to discuss new payments from its US$10 billion share of Indonesia's $43 billion rescue deal before April. A $3 billion handout had been due on March 15. The IMF said Indonesia needed to implement a string of structural measures before the board approved the funds.

Relations between the IMF and Indonesia have become tense since Soeharto's government began considering the introduction of a rigid foreign exchange system, known as a currency board.

Over the weekend, Soeharto surprised observers by questioning whether the IMF plan undermines his nation's constitution.

Fischer said a currency board could work in Indonesia if the right preconditions were met. He said the country could be ready for a currency board within six months.

Echoing IMF concerns, U.S. Treasury Secretary Robert Rubin said Washington had serious problems with Indonesia's efforts so far to combat its financial crisis.

"There are serious concerns and problems that exist at the moment," Rubin told U.S. public television's NewsHour with Jim Lehrer. "The Indonesian government needs to work its way through those problems."

Doubt

Mondale, who traveled to Jakarta last week as a special U.S envoy to express the U.S. concerns about the slow pace of economic reforms in Indonesia, said Tuesday evening it was "very much in doubt" whether Soeharto would apply the reforms designed by the IMF.

Mondale stressed repeatedly in his comments Tuesday at a press briefing in Dallas that Soeharto had made no final decisions about accepting the conditions that come attached to the $43 billion dollar bailout package.

"One of the arguments we made was well, you know, Korea is doing better now having implemented these policies, Thailand is doing better. We hope you'll proceed along the same lines," Mondale said of his March 3 "very open, very candid" 90-minute meeting with Soeharto.

The rupiah has lost more than 70 percent of its value since the Asian economic crisis began last year.

"The reform measures are tough. But they're also designed to do the one thing that has to be done: the restoration of confidence that will allow and encourage people once again to invest in Indonesia, make the currency worth something and they can get back on their feet."

"As we meet today, it's not at all clear what they intend to do," Mondale said.

"The really difficult thing about this problem is that what needs to be done here is not one politician to persuade another politician about what's enough or what's good policy," Mondale said.

"What Indonesia must do is persuade the world market that Indonesia is safe to invest in ... The IMF is trying to shape a policy that will restore confidence by the markets. If you don't do that, nothing works."