Stable rupiah crucial for China: ADB chief

Stable rupiah crucial for China: ADB chief

HELSINKI (Reuters): Asian Development Bank (ADB) president Mitsuo Sato said yesterday that stabilizing the Indonesian rupiah and other Asian currencies was key to relieve devaluation pressures in China.

"The key factor is whether we can stabilize the Indonesian rupiah as soon as possible," Sato told a news conference in Finland.

Sato said China was suffering from the depreciation of other Asian currencies that was weakening competitiveness of Chinese goods and putting pressure on the Chinese currency.

"It is important for us to stabilize the other currencies -- the Thai baht, the Indonesian rupiah and the Korean won," Sato said.

"If the Thai baht rises, it will help relieve pressures on China," he said. "The key element is how the Indonesian currency develops."

He did not elaborate on what measures would be needed to restore stability.

Sato said some Asian economies were now experiencing a "reverse contagion" from Indonesia, after having suffered currency turmoil and contagion that started in Thailand last year.

Sato said he appreciated the Chinese government's resolve not to devalue the yuan.

"Chinese leaders have repeatedly said they would never devalue. That is very welcome, that is a very, very good signal," he said.

Sato said that if China did devalue, it could spark a disastrous round of competitive devaluations and a trade war.

"I appreciate the attitude and effort to maintain the value of their currency," he said.

He also said he expected Hong Kong to be able to preserve its currency board system, which pegs its currency to the U.S. dollar.

Indonesia remained the weak spot in Asia, with any return to recovery lagging far behind the progress seen in Thailand, South Korea and Malaysia, Sato said.

But he praised the commitment of the new Indonesian administration of President B.J. Habibie to proceed with political and economic reform.

Sato said he particularly appreciated Habibie's decision to vest real power in his Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita.

Sato said that Thailand and Korea seemed to have already put the worst phase of economic turmoil behind them and that the Philippines and Malaysia, which had suffered much less currency turmoil, were also on the way to recovery.

Overall, Sato said he saw the recovery in Southeast Asia taking two to three years, but he saw chances of GDP in Thailand, Indonesia and Korea returning to growth in 1999.

Sato's remarks came on a three-day visit to Finland, where he signed an agreement on a new fund for Finnish economic aid to environmental projects in Central Asia.