Indonesia still a cause for concern

Indonesia still a cause for concern

Indonesian President Soeharto has been inundated lately with
blunt advice offered vigorously by world leaders and their
emissaries. But their increasingly strident demands have been
falling on deaf ears. So have the equally urgent pleas of
International Monetary Fund (IMF) negotiators. It would be an
understatement to suggest that the world leaders and IMF
officials are anxious. They are becoming increasingly desperate.
They are worried about the dire consequences for Indonesia and
other countries if Jakarta fails to fully implement the IMF-
brokered rescue package that Soeharto signed last month. The
Jakarta government has claimed repeatedly, in defense of its plan
to introduce a currency board system, that the IMF-rescue package
has failed to stabilize the rupiah-U.S. dollar exchange rate.

But there are a number of reasons why Jakarta must fully
implement the IMF reforms as soon as possible. First, Indonesia
is the worst-hit among regional economies. The need for reforms,
therefore, is more urgent there. But Jakarta cannot reform its
economy without the IMF program.

Financial decision-makers around the region are aware that
prospects for their own economic recovery in their own countries
are tied to stability in Indonesia.

In Hong Kong, for example, market analysts have pointed out
that the Hong Kong Association of Banks (HKAB) was in a position
last week to cut interest rates. There can be no doubt that the
interbank market position has improved. Yet the prime rate was
not changed; HKAB chairman Mervyn Davies cited a number of
uncertainties in the market, particularly with the Indonesian
election coming up.

-- The Hong Kong Standard