RI financial crisis seen as posing regional trade threat

RI financial crisis seen as posing regional trade threat

SYDNEY (Reuters): Further weakness in the Indonesian economy
could lead to a flood of exports from Southeast Asia's biggest
nation, Australian traders said yesterday.

Official figures have yet to show the full effects of the 70
percent loss in value of the Indonesian rupiah since last July.

But traders here believe Indonesia will be forced to unleash a
flood of exports to pay for imports, despite a trade surplus that
stood at over US$1.4 billion last November.

"They have to find the business out the other side. I would
think they'd be trying pretty hard (to boost exports) straight
away," Australian cotton trader David Montgomery told Reuters.

Montgomery, of Dunavant Enterprises, believes that a flood of
Indonesian spun cotton exports would in turn put further pressure
on China, another major cotton products exporter, to devalue its
currency.

That in turn would have a knock-on effect on the stability of
the Hong Kong dollar, which has been pegged to the U.S. dollar
since 1983, Montgomery said.

But economists in Jakarta qualified that view, saying the
outcome was unlikely to be clear-cut.

"We have to import raw materials (as components for exports)
and imports are expensive," one economist told Reuters by
telephone.

The sprawling archipelago of 200 million is suffering its
worst economic crisis in decades as food prices and unemployment
soar in the wake of the collapse of the rupiah and serious
drought.

The high prices have led to weeks of street riots, with ethnic
Chinese who control most of the country's commerce targeted.

Montgomery, a leading player in Australia's A$350-million
(US$231-million) cotton export trade to Indonesia, said the
rupiah collapse has increased the price in rupiah terms.

Only exports can return enough to pay for imports, he said.

The regional effects of an Indonesian export flood are likely
to extend far beyond a spun cotton battle with China.

Garments and clothing worth US$3.6 billion were Indonesia's
second-largest non-oil export in 1996 after plywood. Then came
processed rubber, worth US$2.2 billion, and footwear.

Apart from China, which earns 20 percent of its export income
from textiles, Taiwan and virtually all the nations of Southeast
Asia apart from Singapore have competing industries which would
be hit hard by a flood of Indonesian exports.

One early casualty of Indonesia's trade crisis was the P.T.
Bermis sugar refinery that recently closed, forcing Australia to
divert a cargo of raw sugar to other markets.

Some fear the PT Bermis closure or other short-term measures
might seem like a ripple when compared with an Indonesian export
tide.

On Indonesia's domestic front, many fear a violent reaction to
the short-term pain of an International Monetary Fund bailout
package will be acute as IMF-mandated increased charges for fuel,
electricity and other government-run services come into effect in
April.

Indonesia turned to the IMF for help last year after the
rupiah crash and a private debt mountain that stood at US$73.96
billion at the end of last year.

President Soeharto, up for re-election in an indirect vote
next month, has toyed with the notion of a currency board to peg
the rupiah to the U.S. dollar.

The IMF has threatened to cut off its US$43 billion bailout
package unless the government rejects the currency board option
and cuts government subsidies. Subsidy reductions are due April
1, and Indonesians fear the repercussions will be felt on the
streets.