RI presidential election 'influences' crisis

RI presidential election 'influences' crisis

SINGAPORE (Reuters): Singapore's former prime minister Lee Kuan Yew has said the worst of Asia's financial troubles will not be over until after Indonesian presidential elections next month, the local Sunday Times newspaper reported.

"If there are no upsets in the election, the situation will stabilize and improve. If there are, the currencies and stock markets in the region will be affected by a bout of panic and nervousness," it quoted Lee as saying in a speech at a dinner on Saturday evening.

Lee, who led Singapore for 31 years until 1990, said the Indonesian rupiah currency would weaken again if the market was uncomfortable with the country's next vice-president.

Indonesia's aging President Soeharto has said he would accept the nomination of the ruling Golkar party to run for a seventh five-year term in office.

The country's 1,000-member People's Consultative Congress (MPR) meets on March 1 and is expected to elect Soeharto for a seventh five-year term on March 9.

But there is intense speculation over who will be Soeharto's running mate and potential successor. The 76-year-old President has given no formal indication of who he might favor.

Rumors that research and technology minister B.J. Habibie might be a preferred candidate for the post caused a sharp fall in the value of the rupiah last month. Habibie has been associated with a number of big spending projects.

Lee was quoted as saying market unhappiness with the Indonesian vice-president would lead to higher inflation, more companies going bankrupt and greater unemployment.

"The resulting social problems will be widespread," he said.

"It is vital to Indonesia that the rupiah is stabilized and the stock market begins to recover. Otherwise, the fallout would be bad for Indonesia and may again spread panic over the region," he said.

Lee blamed the Southeast Asian financial crisis on politics.

Investor confidence evaporated when ballooning current account deficits in countries like Thailand, Indonesia and South Korea, which had borrowed heavily in U.S. dollars, became apparent.

He said their overspending was made possible because of weak banking systems, and was exacerbated by corruption and cronyism.

But the root of the problem was political because governments were preoccupied by political difficulties and had not heeded warning signals from the market.

"The Thais had six governments in five years and none had the time to attend to the gaping current account deficits. The Malaysian Prime Minister (Mahathir Mohamad) condemned foreign speculators.

"And President Soeharto thought that he could ride out this crisis as he had ridden so many others in the past 30 years."

But Lee had praise for current Thai Prime Minister Chuan Leekpai and South Korean President-elect Kim Dae-Jung who he said had been "saying and doing all the right things".

"It is a crisis of confidence, and confidence has not yet been restored," he said. "Where the market is not convinced that the leader is doing what is necessary, they have withheld their vote of confidence and the currency is vulnerable."

Arms buying -- Page 4

Protectionism -- Page 10

Asian stocks -- Page 11