U.S., following IMF, hints at flexibility on Indonesia
U.S., following IMF, hints at flexibility on Indonesia
WASHINGTON (AFP): The United States, following the lead of the IMF, on Thursday expressed flexibility toward Indonesia and said it wanted to "engage constructively" in the country's economic recovery.
Treasury Secretary Robert Rubin suggested to reporters following Congressional testimony that the United States could eventually support consideration of a currency peg in Indonesia, administered by a special currency board.
"If Indonesia puts in place an effective reform program, then they can be in a position where a currency board is something to consider," Rubin said after an appearance before the Senate Appropriations Committee.
"We have said consistently... that the currency board is a particular mechanism and currency boards have worked in a number of countries.
"But when they work, the proper situation has been created for a currency board. Our view is that those conditions do not exist today in Indonesia."
Indonesian President Soeharto's preference for a currency board, which would try to stabilize a wildly fluctuating exchange rate by pegging the rupiah to the U.S. dollar, has complicated Jakarta's relations with Washington and the International Monetary Fund (IMF).
The IMF has blamed the currency board proposal, which it too has dismissed as premature, for interfering with the Jakarta's implementation of critical economic reforms.
The measures were agreed to by the Indonesian government in exchange for some US$43 billion in IMF-arranged assistance to restore confidence and stability to the country's floundering economy.
The Fund last week said that it was delaying disbursement of a second installment of its rescue package until April.
But on Tuesday, IMF Deputy Managing Director Stanley Fischer stressed there was still "room for flexibility" in its dealings with Indonesia, noting that the IMF always "changes (its) program with changes in circumstances."
Fischer too insisted that IMF opposition to a currency board was not permanent. If, for example, the government took steps to reform and strengthen the banking sector, the Fund could then accept the creation of the board.
In his exchange with journalists, Rubin stressed that the United States intended "to engage constructively with trying to reach a point where Indonesia puts in place an effective reform program."
"We want to contribute in any way that we can," he said, maintaining that the U.S. approach had been "consistent and will remain consistent."
The secretary did not rule out the possibility that another special U.S. envoy would be sent to Indonesia to discuss reforms with officials there.
Earlier this month the administration dispatched former vice president Walter Mondale with instructions to urge Soeharto to stick closely to the IMF reform scheme.
However, Camdessus said in Washington Thursday the IMF still opposed Indonesia's plans to introduce a currency board, rejecting speculation that the agency had softened its stance.
"We have not dropped at all our opposition to a currency board introduced now in the present capacity in Indonesia," Camdessus told the Economic Club of Washington on Thursday, insisting that economic and banking reforms were essential before such a plan could be implemented.
"This country, with its very limited stock of reserves now, with an extremely vulnerable banking system, with a corporate debt which has not yet been stabilized or rescheduled, cannot afford to manage a currency board," he was quoted as saying by Reuters.
Camdessus said he hoped the IMF could soon release a $3 billion loan to Indonesia, another installment in a $40 billion rescue package agreed on with Jakarta in January.
"There is now a new team in place in Indonesia, and after what the president (Soeharto) has said about the commitment to the principle of our program, we could agree in the not too distant future," Camdessus told reporters after his speech.
In Tokyo, former U.S. president Jimmy Carter said yesterday that the Indonesian President had broken commitments he made to the IMF over reforms to his government.
Carter said it was essential for Indonesia's economic recovery that Soeharto commit himself to reforms mandated as part of an IMF agreement.
He said while forthcoming talks between Japanese and Indonesian officials were a sign that Indonesia may be reaching out to solve its standoff with the IMF, U.S. special envoy Walter Mondale's meeting with Soeharto last week was "not successful".
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