Krugman mocks currency board proposal for RI

Krugman mocks currency board proposal for RI

HONG KONG (Dow Jones): Leading U.S. economist Paul Krugman lashed out yesterday at "economic snake-oil salesmen" seeking to offer a quick fix to Indonesia's complex problems.

At a conference organized by Credit Suisse First Boston, Krugman, Ford International professor of economics at Massachusetts Institute of Technology, sharply criticized fellow economist Steven Hanke's proposals to set up a currency board in Indonesia.

Hanke, an economics professor at Johns Hopkins University and special adviser to Indonesian President Soeharto, has said pegging the rupiah to the U.S. dollar is one way to tackle Indonesia's crisis.

"I wish I was as sure about anything as he is about everything," Krugman said, referring to Hanke as a "rupiah Rasputin."

"I wish I could say that currency boards are a really stupid thing. They're not," Krugman added. They're just a way of preventing governments from just printing money, he told an audience that included Hanke.

"It's a way to...lash myself to the mast so I can't respond to the siren song of the printing press," Krugman said, challenging Hanke's sudden emergence as a "guru."

"It would be hilarious if it wasn't so serious," said Krugman, who added that he's increasingly bullish on Asia, except for Indonesia.

"Indonesia scares the daylights out of me and everyone else; the mix of corrupt autocracy, susceptibility to economic snake- oil salesmen, ethnic tensions and, yes, fumbles by the IMF (International Monetary Fund) have created the potential for a catastrophe of immense dimensions," Krugman said.

Krugman admitted that he too was wrong about Asia, despite writing a controversial 1994 article entitled, "The Myth Of Asia's Miracle," saying it only showed he was closer to the mark when everyone else was starry-eyed.

"Still, I had no idea that things could be as bad as they turned out to be. In my view, I was 90 percent wrong about Asia's future. The only consolation is that everyone else was 150 percent wrong," Krugman said.

"Why were we all -- the bankers, the politicians, the IMF and the economists -- so wrong?" he said.

The general excuse is that nothing like this ever happened before, but everyone should be ashamed, he said, citing the case of Chile, where the same symptoms occurred prior to a currency crisis in 1981-82.

"The parallels are so close that I and everyone else -- certainly anyone who, like me, spent a lot of time studying the Latin American debt crisis of the 1980s -- should have been totally prepared for what happened to Asia last year," he said.

Fortunately, Asia's crisis isn't as bad as Chile's or Mexico, and some investor cash is already returning, said Krugman, calling for reform despite the signs of recovery.

He said the IMF isn't exceeding its mandate in insisting on structural reform as a condition to bailing out the region. What if it lent money to Asian governments and then lost part of it to countries where some of the cash went to banks controlled by the president's son, or to companies that had bribed government officials?

"Imagine trying to explain that to (U.S.) Senator (Alfonse) Amato," Krugman said. Amato, a sharp critic of the U.S. bailout of Mexico in 1995, has expressed concern about U.S. involvement in IMF rescue packages in Asia.