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.