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Strategies & Market Trends : Asia Forum
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To: Jack Clarke who wrote (692)1/18/1998 2:43:00 PM
From: Rational  Read Replies (1) of 9980
 
Jack:

I am sorry that I could not get to your question. Thanks for appreciating my remarks.

I am really startled (and pleasently so) about the consistency of my comments on the IMF with the reports after reports that appeared everywhere in the media a long after I made my (rather radical sounding) posts on SI.

With respect to Indonesia, IMF has changed its prescription by allowing a budget deficit (no surplus is being insisted). I had a fear that the IMF would allow Suharto's children/cronies to continue their corruption (I later read somewhere Dornbush airing the same fear); but the IMF forced Suharto to delete many of the wasteful projects. Although there is a fear that Suharto would not finally implement what he signed to carry out, at least the IMF cannot be blamed for not coaxing the Indonesian president to do right things.

In any case, no one can absolve the IMF for precipitating the currency crisis in Indonesia. An IMF internal memo (confidential but leaked out) attributes that the IMF fiat to close 16 of Indonesian banks caused the crisis of currency run from 2400 Rp/US$ to 10000 Rp/US$. Indonesian authorities lost confidence in the IMF prescriptions. But, later they all agreed to cooperate to improve the situation.

The only solution I see for Indonesia is as follows:

* Japanese, Korean and German banks are going to lose about $40 bil to Indonesian companies who cannot simply pay.

* They should (maybe would) use about half of this amount to buy Rp and force the short-sellers to cover.

* The Rp will rise to say 4000/US$ (which still looks below its fundamental value).

* Then the same Indonesian corporations would be able to pay their loans by buying the US$.

* Thus, the foreign banks can get back all their loans. They can then use the Rp (bought in the process) for investment via Rp loans in Indonesia.

* I have a guess they will do so.

An opportunity to bet on Rp? It is risky, but worth considering.

Sankar
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