U.S. urges Indonesia to do more on reforms
U.S. urges Indonesia to do more on reforms
WASHINGTON (Reuters): The United States, clearly worried about
the course of Indonesia's economic program, said on Wednesday
Jakarta should step up efforts to convince markets it was serious
about IMF-sponsored reforms.
U.S. Deputy Treasury Secretary Lawrence Summers also told
reporters Washington would only hand over money it has promised
to troubled South Korea after commercial creditor banks agreed
ways to extend the maturity of billions of dollars of South
Korean debt.
The International Monetary Fund, criticized for imposing
excessively harsh terms on countries seeking financial aid, was
acting in an appropriate way, he said.
Summers was speaking amid mounting financial market concern
about Indonesia's ability to adhere to a reform package agreed
with the IMF, which wants Jakarta to clean up its banking sector,
tighten monetary policy and control public spending.
"It will be crucial for Indonesia to carry through on policy
commitments that it has made in the context of the IMF program,
particularly with regard to measures to reform and clean up the
financial system, to adjust monetary policy and to control public
infrastructure spending," Summers said.
The U.S. is contributing $3 billion to Indonesia's $40 billion
rescue deal, a package of international loans designed to help
overcome the problems caused by a plunging currency and a fragile
financial sector.
It is an even bigger player in a still larger bailout for
South Korean, reflecting Seoul's greater economic and political
weight. South Korea, the world's 11th largest economy, has
already received $11 billion of IMF money as part of a record-
breaking $50 billion rescue deal.
Summers said he was pleased with the progress made by South
Korea in sticking to an IMF-backed plan which stresses the need
to ease ties between banks and industrial conglomerates and
reduce the debt burden.
But he said Washington would only hand over $1.7 billion
promised to Seoul on Dec. 24 once banks had agreed to extend
maturities of South Korean debts and raise new cash. He hoped
this would take place "in the next several weeks".
"The policy statements and actions by the Korean legislature
have been generally constructive and voluntary agreement among
major banks to maintain exposure levels has contributed to
confidence in Korea," Summers said.
Some economists have accused the IMF of using old recipes to
try to solve new problems, although they accept that the
governments are not blameless.
"The problem here, more than anything else, is that the fund
is facing a whole new set of circumstances with which it has had
very little experience," said Princeton University economics
professor Peter Kenen.
"The governments concerned are still in denial," he added.
"They are so tied up in crony capitalism that they are not
prepared to take the measures that need to be done."
"The sort of standard remedies that the fund has used in
dealing with countries in distress are remedies of somewhat
dubious relevance in these circumstances."
A Washington-based international economist said the rescues
had failed to provide markets with an anchor of stability.
Currencies remained under pressure and information was patchy,
both from governments and from the IMF, he said.
The Washington Post newspaper on Wednesday quoted an IMF
official as saying the crisis was worrying.
"I think the markets are asking themselves the question of
just how much the senior Indonesian leadership is committed to
this program and particularly to the major reform measures that
affect the (Soeharto) family", the newspaper quoted an IMF
official as saying.
The New York Times newspaper said the IMF was urging the
Indonesian government to implement its reform package and that
the fund had sent Soeharto a "strongly-worded" letter urging him
to carry out economic changes.