U.S., IMF press Indonesia to reform amid Asian crisis

U.S., IMF press Indonesia to reform amid Asian crisis

WASHINGTON (AFP): The United States and IMF redoubled pressure
Friday on Indonesia to reform its troubled financial system as
fears of a total economic collapse there sent global markets into
a tailspin.

On Wall Street, the Dow Jones index closed 222.20 points or
2.8 percent lower in heavy trading Friday at 7,580.42, after
falling to a low of 7,527. 35, while the tech-heavy NASDAQ
dropped 52.35 to 1,503.19.

New York's slumping share prices followed overnight drops
throughout Asia and Europe, which saw key indices in Hong Kong
and London drop 3.9 and 1.88 percent, respectively.

Senior U.S. officials about to visit Asia will stress the U.S.
view that Jakarta ought to "adhere fully" to IMF prescriptions to
fix the economy in exchange for a US$43 billion bailout, the
State Department said.

But while U.S. officials have publicly sent messages of
support, the world's fourth-largest country got more bad news
from the financial world even as most Indonesians were sleeping.

Moody's Investors Services downgraded Indonesia's foreign
currency country ceiling for bonds and notes to B2 from Ba1 and
the foreign currency bank deposit ceiling from Caa1 from Baa3

The U.S. ratings service said the downgrades are the result of
"rising concerns over the economic and financial consequences of
continued turmoil and volatility in Indonesian financial
markets."

Standard and Poor's Corp. also lowered its long-term foreign
currency rating for Indonesia to BB from BB+ and its local
currency ratings to BBB from BBB+.

It cited mixed signals on the government's "commitment to the
economic reforms that are essential to stabilizing the crisis of
confidence and containing the recent acceleration of capital
(including depositor) outflows."

Indonesia has been hit hardest this week, following
publication of a new budget that appear to flout International
Monetary Fund directives, but indices throughout Asia have
simultaneously nosedived.

South Korea, buoyed by a 57-billion-dollar IMF bailout, also
took a hit Friday from Moody's, which described an agreement by
creditor banks to a 90-day rollover of South Korean debt as
"equal to a default."

Late Thursday, the IMF announced that IMF Managing Director
Michel Camdessus and IMF First Deputy Managing Director Stanley
Fischer would head to Indonesia to negotiate a "strengthening and
acceleration" of Jakarta's bailout package.

That move, coordinated with Washington, came as President Bill
Clinton spoke by phone with Singapore Prime Minister Goh Chok
Tong and Indonesian President Soeharto to underscore U.S. support
for IMF programs.

The White House said Deputy Treasury Secretary Lawrence
Summers would head to Asia with other senior officials, citing
"significant (U.S.) national security and economic interests in a
stable and prosperous Asia Pacific."

The State Department reiterated that message on Friday, saying
Summers would be joined on his trip to Asia by U.S. APEC
coordinator John Wolf and assistant secretary of state for
economic affairs Alan Larson.

U.S. officials are notably keen to persuade the Indonesian
president, in power for 32 years, to stick to the terms of the
IMF bailout and clean up Indonesia's deeply troubled banking and
financial systems.

They blame Indonesia's tumbling currency for hitting Asian
markets anew and fear a default on South Korean loans could
worsen Japan's six-year-old recession -- dragging down the global
economy.

Analysts here were dubious about what the U.S. and IMF
missions to Asia would accomplish, saying it's up to Asian
leaders to make painful political choices for the long-term
health of their economies.

"They can't do anything. This is a political crisis," said
Robert Manning, Asia scholar at the Council on Foreign Relations.

"Indonesia is the most explosive situation, and they don't
care about the IMF. They care about stability."

Private forecasters and U.S. officials say fallout on the U.S.
economy, the world's largest, appears slight so far, with the
Federal Reserve predicting U.S. growth in 1998 will slow by 0.50-
0.75 percentage points.