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