Peg useless without political change

Peg useless without political change

Indonesia is gearing up to establish a currency board system
aimed at stabilizing the beleaguered rupiah. This would mean
pegging the Indonesian rupiah to the United States dollar. Sounds
familiar? It should. Financial experts here generally agree that
our own currency's link to the U.S. dollar has served Hong Kong
well and has underpinned confidence and stability here. While
arrangements have yet to be finalized, analysts expect the rupiah
will be set at 5,000 to the U.S. dollar, should the proposal go
ahead.

News that Indonesia might seek to align its currency in this
way came as no surprise. Recent comments by President Soeharto
about the need to stop currency speculation had already raised
expectations of financial reforms. The question is: would this
move help stabilize the rupiah? Unfortunately, there is still
some reason to doubt whether it would. The trouble is that the
situation in Indonesia is no longer an economic or financial
crisis, but a political one. Whether the currency link works or
not will depend on whether the Indonesian people and the
investors have confidence in the rupiah. It is as simple as that.

-- The Hong Kong Standard