RI commitment to IMF reform: Mar'ie

JAKARTA (JP): Minister of Finance Mar'ie Muhammad has reassured the finance ministers of the Group of Seven (G-7) developed nations that Indonesia remains firmly committed to the International Monetary Fund (IMF)-sponsored reform package.

Mar'ie told the House of Representatives yesterday he gave the reassurance in a letter to G-7 finance ministers who are meeting in London this weekend.

"We also ask them to consider credit guarantees for Indonesian letters of credit to help exporters who need imported basic materials," he added.

The Ministry of Industry and Trade said Thursday that several industrialized countries, including Japan, Australia and the U.S., would provide credit guarantees for Indonesian exporters to import raw materials.

International Trade Director General Djoko Moelyono said discussions about similar assistance were being held with Germany, Singapore and the Netherlands.

Questions about Indonesia's seriousness to implement the IMF economic reforms, signed by President Soeharto on Jan. 15 as a condition to a US$43 billion bailout fund, have heightened as the government is planning to adopt a fixed exchange rate under a currency board system (CBS).

IMF managing director Michel Camdessus warned last week that the IMF might discontinue its financial assistance for Indonesia if the government pushed ahead with its fixed exchange rate scheme at this point in time.

A CBS is a monetary regime based on an explicit legislative commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate.

Mar'ie reaffirmed that Soeharto has instructed his ministry and the central bank to make preparations for the implementation of the CBS.

"The government always wants to maintain a good relationship with the IMF," Mar'ie added.

Meanwhile, vice presidential candidate B.J. Habibie said no decision had yet been taken to fix the rupiah through the use of a currency board.

"The decision about a fixed currency has not been taken. That would only be an emergency break in case speculation against the rupiah continued," Habibie told Der Spiegel magazine in an interview published in Bonn yesterday.

According to a summary text of the interview, as quoted by AFP, Habibie, currently Indonesia's research and technology minister, said he believed a more likely course was that Jakarta would retain floating rates while reforming its financial market system.

The IMF and United States held their ground Thursday in a high-stakes showdown with President Soeharto, saying it was premature to put a rigid currency board in place for the beleaguered rupiah.

The IMF said in Washington that its position had in no way changed from last week.

But in a sign the international lending agency may be more flexible in the months ahead, the IMF said the controversial currency plan could be considered once certain conditions were met by Jakarta.

"It is premature to install a currency board now," an IMF spokesman said in a statement as quoted by Reuters.

Once banking reform, corporate debt and other economic issues are addressed, "one could reconsider whether a currency board would be necessary or desirable," the spokesman added.

The Clinton administration, backing up the IMF in the dispute, told Soeharto to stick to the economic reforms prescribed by the fund.

"Once those sort of issues are dealt with you can decide: Does a currency board make sense or not? I'm not suggesting that it does in these circumstances," U.S. Treasury Secretary Robert Rubin told reporters in Washington.

The currency board plan also has come under fire from the European Union which has said the economic conditions in Indonesia are not ripe for such a move as it could aggravate market instability.

There has, however, been speculation in financial markets that the IMF and Indonesia might reach a compromise on the controversial issue.

German Finance Minister Theo Waigel said Wednesday after he met with the Indonesian leader that Soeharto has promised to rethink the currency board proposal.

"Indonesia is so determined. I think there will have to be a compromise with some version of a currency board," said Barry Bosworth, an economist at Washington's Brookings Institution.

In Washington, a senior U.S. Treasury official said the G-7 has agreed that implementing a currency board would not provide a quick fix to the nation's economic woes and that a steadfast commitment to reforms is what is necessary. (08)