Date: Sun, 1 Feb 98 14:17:19 CST
From: Bob Olsen <email@example.com>
Subject: Socializing Bank Losses, part II
Date: Sun, 11 Jan 98 00:49:31 CST
U.S. reads the riot act to Indonesia. Economic crisis deepens: Suharto shoulders blame
By Barrie Mckenna, Toronto Globe and Mail
Saturday 10 January 1998
The top two officials of the IMF -- managing director Michel
Camdessus and first deputy Stanley Fischer -- will visit
Indonesia next week to "read the riot act" to Suharto...
...the rupiah has tumbled 70 per cent against the U.S. dollar...
WASHINGTON -- U.S. President Bill Clinton and the International
Monetary Fund launched an emergency initiative yesterday to force
Indonesia to swallow its bitter economic medicine.
Mr. Clinton warned Indonesian President Suharto in a 25-minute
telephone call that his government must stick to the demanding terms
of a $43-billion (U.S.) loan package.
At the same time, North American markets reeled over the deepening
Asian financial crisis. In New York, the Dow Jones Industrial Average
fell by 222 points or almost 3 per cent, while the Toronto Stock
Exchange index dropped 218 points.
Indonesia triggered a plunge in its currency, the rupiah, this week
after the government introduced a budget Monday that defied the IMF
demands that it hold the line on new spending.
However, fear is now growing that the bailout, part of a $120-billion
rescue package for several Asian countries, may not be enough to hold
back a wave of pessimism about the region's finances.
The top two officials of the IMF -- managing director Michel Camdessus
and first deputy Stanley Fischer -- will visit Indonesia next week to
"read the riot act" to Suharto, as one Canadian official put it.
Also on his way to Indonesia is U.S. deputy treasury secretary
Lawrence Summers and a team of U.S. officials, underscoring heightened
fears in the White House about the deepening crisis. Mr. Summers, who
arrives today, is also to visit Singapore, Thailand, Malaysia and
possibly Japan and China on his hastily arranged trip.
"Our concern in Indonesia, given the continued decline in the currency
there, is that steps be taken to institute the important structural
reforms that were set out in the IMF program," White House chief
economist Janet Yellen said yesterday. "What is key in restoring the
markets' confidence is Indonesia's ability to take appropriate
In Jakarta, more calls emerged yesterday for Suharto, 76, to step
down, a prospect that was unthinkable a week ago.
The Jakarta Post quoted former cabinet minister Mohammad Sadli as
saying a change in government is needed to restore international
Suharto has ruled Indonesia with an iron grip for more than three
decades, tolerating little dissent. Calls for his removal from the
presidency have been restricted to marginal or underground groups.
Indonesia's future has not been so bleak since the 1960s, when
Suharto, then a military general, took power from founding president
Sukarno as the country verged on bankruptcy.
Residents of this teeming capital flocked to supermarkets yesterday
for the second day, snapping up vital food stocks to beat feared
price rises amid the turmoil.
"I couldn't find any milk for my two children. But I got a little
cooking oil and rice, enough for three days only," said one shopper.
On one Jakarta street, hundreds of women crowded behind a truck to
buy government-subsidized rice. At a store in East Jakarta, rice
prices jumped 30 per cent as merchants took advantage of the stampede
Suharto ordered that food supplies be distributed quickly to avoid
more panic, state secretariat minister Murdiono told reporters.
Diplomats and political analysts have said a food shortage, especially
during the fasting month of Ramadan, could trigger the social unrest
Suharto's iron rule has essentially contained.
The Indonesian currency actually strengthened a bit against the U.S.
dollar yesterday, after losing more than a quarter of it value
Thursday. Since July, the rupiah has tumbled 70 per cent against the
U.S. dollar, the steepest decline of any Asian currency during the
The IMF says it's considering accelerating payments on its loan
program -- as it did for South Korea -- but only if the Indonesian
government shows renewed sincerity to live by the original deal. Under
the plan, the IMF has paid Indonesia $3-billion, and another
$3-billion payment is due March 15.=20
But the greater fear now is that a new contagion effect may spread to
Singapore, Indonesia's neighbour and key trading partner, as well as
to nearby Malaysia, Thailand and the Philippines. South Korea is
still negotiating debt-repayment terms with a group of international
banks, after agreeing to a bailout in late November.
"Although they have been hit pretty hard, Thailand and the Philippines
seem to be making sensible policy changes and getting on with
adapting," a Canadian official said. "But the contagion obviously could
In a televised address yesterday, Malaysian Prime Minister Mahathir
Mohamad accused the IMF of "economic colonialism." He called on
citizens to curb exports, buy locally produced margarine and grow
their own vegetables.
"We would not be able to control our economy and would throw it open
to foreign domination, whereby they would come in and buy our banks
and companies at cheap prices," Mr. Mahathir said.
The Malaysian currency, the ringgit, has plunged nearly 50 per cent
since July, but the country has so far resisted IMF aid.
Former U.S. secretary of state Henry Kissinger warned yesterday that
an anti-American backlash could sweep Asia because of tough economic
measures imposed by the IMF.
"I think the IMF cure would have been very good if it was applied
three years ago," he said in a speech to the World Affairs Council in
"We have to be careful the economic realities don't lead to a wave of
nationalism and eventually anti-Americanism in which the cure is worse
than the disease."
Indeed, the IMF has forced such extreme austerity measures on
Thailand, for example, that the country's deputy prime minister is
warning that the Thai financial-bailout program is in danger and may
soon throw the nation into political turmoil.
Supachai Panitchpakdi, one of the key figures in the Thai rescue
program, said during a visit to India that the IMF aid package is
causing more harm than good by forcing the government to slash
spending while the economy is already reeling. He also harshly
criticized Washington for not supporting Thailand, its closest ally
in the region, earlier in the crisis.
"We've been one of the greatest friends of the U.S.," he said,
pointing to special Thai investment status for Americans. "I'm
beginning to doubt whether it was worthwhile."
A year ago it was considered to be one of the world's most successful
developing economies. This week, the U.S. agency Moody's downgraded
Thailand to junk-bond status for investment. The country's liquidity
crunch, with interest rates above 20 per cent, has hit many profitable
exporters who cannot secure international-trade finance.
Copyright 1998, The Globe and Mail Company
Bob Olsen Toronto firstname.lastname@example.org (:-)