Keating defends RI against market

Keating defends RI against market

SYDNEY (Reuters): Indonesia has been "punished" by financial markets more severely than other Asian nations because of an inaccurate view that it was a rogue state, former Australian prime minister Paul Keating said yesterday.

"The future of the Indonesian economy became caught up in judgments about its political system," Keating said in a lecture at the University of New South Wales.

"Indonesia was disproportionately punished because a grossly inaccurate view had taken hold in some quarters in Europe and north America that it was some sort of rogue state..."

Keating said Indonesia had been compared with the politically corrupt regimes of former Zairean president Mobutu Sese Seko and former Philippines president Ferdinand Marcos.

"Some of the commentary we are seeing about Indonesia has a chilling tone to it," said Keating, who as Labor prime minister between 1991 to 1996 made six visits to Jakarta, forging a deep personal friendship with 76-year-old President Soeharto.

"Those who argue that the screws should be tightened on President Soeharto and the government because this will somehow force political change show tragically little understanding of what the consequences of widespread unrest in Indonesia would be for real people in the real world."

Keating was also critical of the International Monetary Fund and its US$40 billion-plus Indonesian rescue package.

"The IMF has done its job with good intentions, but I agree with those who argue it has been the wrong job," he said.

"The international goals for dealing with the crisis...were expanded and restructured to include, explicitly, wholesale economic and social reform, and implicitly, a change in the political leadership."

Keating said reform of the banking and finance sector and the rescheduling of Indonesia's crippling corporate debt were badly needed, along with political openness.

But he said some reforms, such as the dismantling of the clove monopoly of Soeharto's son Hutomo (Tommy) Mandala Putra were unnecessary and politically unachievable, and were delaying the restoration of market confidence in Indonesia.

Keating said Jakarta had sent out confusing signals about its commitment to reforms, such as the plan to establish a currency board which would peg the rupiah to the U.S. dollar.

"The regrettable truth is that times like this require directness and clarity rather than the Javanese obliqueness," he said. Soeharto is Javanese.

Keating praised Soeharto's 32-year rule, arguing it had transformed Indonesia from a rural to an industrial economy, slashed poverty, raised literacy levels and created a new middle class of around 15 million people.

"Indonesia has not been good at telling its own story," Keating said.

"The current rate of exchange is quite unreal. A fiction which bears no relationship to the strengths of the Indonesian economy," he said. The rupiah, now around 8,400 to the U.S. dollar, has fallen about 70 percent in value against the dollar since July 1997.

But Keating warned that the pace of reform being demanded and the depressed economic outlook of rising food prices, unemployment and possible hyper-inflation were likely to lead to further social unrest.

Indonesia has been hit by riots over soaring prices and food shortages during the past two months.

Keating also warned that the Asian crisis had serious political and strategic consequences and that Asia was facing a "perilous moment" which could see isolationist policies emerge.

"The whole direction in which the Asia Pacific has been moving -- towards economic and political openness, towards a sense of Pacific community -- is at risk," he said.