IMF to face regional pressure over conflict with Indonesia

IMF to face regional pressure over conflict with Indonesia

SYDNEY (Reuters): The International Monetary Fund will come
under intense pressure from countries in the region to back down
from confrontation with Indonesia if social unrest worsens,
political analysts said yesterday.

Indonesian President Soeharto has squared off against the IMF
over the terms of a US$43 billion bail-out package, raising the
prospect of delays in IMF funding. Economists warned that could
result in soaring prices and a renewed banking crisis.

Disquiet has grown across the region in recent days, with
Canberra urging the IMF to be sensitive in its dealings with
Australia's nearest neighbor and main ally in Southeast Asia.

Indonesia's neighbors worry that the terms of the IMF package,
including the removal of government subsidies on food and oil,
will fuel more riots across the archipelago of 200 million people
and leave the country dangerously unstable.

"I think the IMF will have to climb down," Gerry van Klinken
of Sydney University's School of Asian Studies told Reuters.

Dr Harold Crouch, senior fellow in Indonesian politics at the
Australian National University, said Soeharto could press other
regional leaders for help on the IMF package.

"I can see him, with Australian support, pressing the IMF on
subsidies for food and cooking oil and kerosene and the IMF could
well give ground, I think they're quite flexible on that sort of
thing," Crouch said.

Crouch said another slide in the rupiah's value might force
the United States and China to act to protect other sensitive
regional currencies.

"I think the Americans have to consider that if the rupiah
collapses again...the chances are it will drag other currencies
with it," he said.

"If that happens, then the pressure on the Chinese would be
greater, especially if Japan presumably doesn't replate its
economy."

Trevor Rowe, Asian chief for U.S.-based bank Salomon Smith
Barney's, said the lack of stability in Indonesia had cast a pall
over the rest of Asia and that Soeharto's re-election on Tuesday
provided a good opportunity for new talks with the IMF.

Analysts say regional side-effects of the crisis could include
an increase in illegal immigrants to neighboring countries like
Malaysia and inaction over forest fires that are threatening
Southeast Asia with a pollution disaster for the second
consecutive year.

"Refugees to Indonesia, people taking to piracy and that sort
of thing will be on the increase," said Dr Carl Thayer of the
Australian Defense Force Academy's politics department.

Soeharto stepped up the pressure on the IMF on Sunday when he
said the rescue package was aimed at producing a liberal economy
which was against Indonesia's constitution.

The IMF has delayed about US$3 million of aid until April,
citing the political preoccupation with Soeharto's reappointment.

"I think that Soeharto is playing a brinkmanship game at the
moment...even though looking at it from the outside it looks like
a crazy kind of risk or gamble to take," van Klinken said.

Crouch said there was a real chance that rioting could spread
to the big cities, forcing a military crackdown.

"At some point people are going to riot and the possibility is
that it will spread to the big cities," Crouch said.

"If that happens, then the pressure on the military to do
something about Soeharto would be all the greater."

Crouch said the crisis would also see regional influence shift
away from Indonesia to Malaysia and China and would weaken
Jakarta's position in the Association of Southeast Asian Nations
(ASEAN).

"There would certainly be tensions within ASEAN," he said.

Thayer said the make-up of the Soeharto's cabinet would be of
paramount interest to the region as it looks for economic
solutions and a possible successor to the 76-year-old leader. In
the meantime, ordinary Indonesians face even more difficulties.

"These are the easy days when people can still sell their
jewelry. It's going to get worse," Thayer warned.