Indonesia aid plan seen lifting world confidence
Indonesia aid plan seen lifting world confidence
NEW YORK (Reuters): The IMF's aid package to Indonesia came at the right time to help boost confidence in global financial markets, though it may not be enough to put to the region back on track, U.S. analysts said on Friday.
Earlier, the International Monetary Fund pledged US$23 billion in funds to be paid by IMF, the World Bank and the Asian Development Bank. The United States and other nations have offered additional help, which could raise the total package to some $30 billion.
In return for the funds, the Indonesian government promised to restructure banks, reform its tax system, and cut tariffs and trade barriers.
"It's the expression of support that is positive and will help to turn the markets from here," said Frank Fernandez, principal portfolio manager at Global Emerging Markets Advisors.
The aid package was announced at the end of a week of extremely volatile trading around the world, kicked off by a 13.7 percent drop in Hong Kong's Hang Seng Index. That triggered a 554-point loss by the Dow Jones Industrial Average on Monday, and rattled nearly every market from Europe to Latin America.
The financial turmoil, which now focuses on Hong Kong, surfaced this summer when the currencies of Indonesia and other one-time tiger economies of Southeast Asia fell prey to attacks by speculators.
On Friday, analysts said they were especially pleased the United States pledged its support to Indonesia, saying the gesture would have a calming effect for all markets.
"The United States is making a statement that this has got to stop at the source, and one of the sources is Indonesia," Thomas Trebat, head of emerging market research at Citicorp Securities said.
Analysts said the funds were key to enabling Indonesia to shore up its foreign exchange reserves, which were decimated this summer as the nation tried to defend its currency.
Still, analysts were concerned the pledges might be insufficient to stem the financial crisis that has rippled through Southeast Asia and could spread to Latin America.
Luis Luis, head of emerging market analysis at Scudder, Stevens & Clark, said he agreed the U.S. support for Indonesia was a "moral boost" to emerging markets but more needed to be done to help renew broad investor confidence.
"The problem is you probably need two out of the three countries for the region to stabilize," Luis said, noting that Malaysia and Thailand were still experiencing troubles despite the IMF's $17.2 billion aid package to Thailand.
Transparent
Meanwhile, U.S. Treasury Secretary Robert Rubin should be more open with the public and Congress about the role the United States will play in a loan package for Indonesia, a Congressional panel chairman said on Friday.
"An open and transparent disclosure of relevant information limits uncertainty and speculation and is a stabilizing force," Rep. Jim Saxton, chairman of the Joint Economic Committee, said in a statement.
He called on Rubin to disclose the terms of any loan and explain how it would be repaid.
An aide said Saxton did not plan to call a hearing on the loan package.
The United States said Friday it was ready to provide up to $3 billion as part of backup plan for an International Monetary Fund loan package to help Indonesia regain its economic balance.
Rubin said the funds would come from Treasury's Exchange Stabilization Fund.
Saxton characterized Rubin's announcement as a "turnaround" in U.S. strategy. He said the Clinton administration's strategy had been based on the assumption that Thailand's financial crisis would not spill over into other markets.
"The reversal of administration strategy in dealing with the Southeast Asia crisis requires explanation to assure the support of the public and Congress," Saxton said.
The IMF on Friday unveiled a $23 billion financial package involving the World Bank and Asian Development Bank to help Indonesia overcome its financial system woes.
Backup financing from the United States and other countries would be used to supplement resources made available by the IMF and Indonesia's own reserves, and would carry conditions.
It would depend upon Indonesia putting into place economic and structural policies supported by the IMF, the World Bank and the Asian Development Bank, U.S. officials said.