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".

Hashimoto -- Page 8

Currencies -- Page 9