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.