Indonesia's Suharto stirs confusion in world mkts
By Jeff Coelho
NEW YORK, Feb 18 (Reuters) - Indonesia's long-standing leader has
perplexed world capital markets -- again.
International investors have gotten used to pondering President
Suharto's health, political future or fiscal policy. Now, analysts said,
they are baffled over whether he will implement a currency board to
stabilize his country's sick economy.
''It is in fact confusing seeing the mixed signals coming out from
Indonesia,'' said Feroz Talyarkhan, managing director of Asian fixed
income research at Bear Stearns and Co.
After hinting Indonesia would implement a foreign exchange peg despite
overwhelming international criticism, Suharto on Wednesday reportedly
backed away from that controversial option.
German Finance Minister Theo Waigel emerged from a Wednesday meeting
with Suharto saying that the president vowed to ''rethink'' the fixed
exchanged rate plan, which would peg the battered rupiah currency to a
more stable currency, such as the U.S. dollar.
A Singapore newspaper reported on Wednesday that Jakarta had decided to
discreetly jettison the plan, and place it before debate in Congress
following general elections in March.
These developments contrasted sharply with Tuesday's news when Suharto
sacked his central bank governor, Soedradjad Djiwandono, who had
reportedly opposed the plan.
''It's hard to see Suharto caving in publicly on the currency board
three weeks before the election, but Waigel's comments do add credence
to the reports that the currency board plans may be put on the back
burner for a while,'' said Roger Francis, senior analyst at IBJ
International in London.
The plan for a fixed exchange rate system has come under heavy criticism
from the International Monetary Fund (IMF), the European Union and the
United States, who have said current economic conditions in Indonesia
were not ripe for such a move.
The IMF signaled that a $43 billion IMF-sponsored rescue package might
be in jeopardy should Jakarta adopt the plan, but analysts said they
doubted the Fund would cut off dialogue with Indonesia.
''This will not be a cold war between the IMF and Indonesia,'' said
Thomas Trebat, head of emerging markets research at Citicorp Securities
in New York. ''If Indonesia does go ahead, which I don't think they
will, you will have a period of strained relations but dialogue going
on.''
Nonetheless, Indonesia's muteness on the issue has thrown the financial
markets into a state of confusion.
The Indonesian economy has been rattled by rising consumer prices, an
increase in unemployment and a currency that has tumbled about 70
percent against the U.S. dollar since July.
The Indonesian rupiah firmed slightly against the U.S. dollar Wednesday
on the assumption that the idea of a currency board might be dropped. It
stood at 8,850/9,150 against the dollar in New York trading.
Scattered riots have broken out in different areas of the huge
archipelago of 200 million people in recent weeks over the economic
pains.
With a severe slump in the economy, analysts have been mulling what
Suharto was up to.
Talyarkhan said the former military general might ''be playing a
dangerous game of trying to extract from the IMF certain concessions in
exchange for backing off from the currency board.''
But Citicorp's Trebat said Suharto probably views the IMF as part of a
solution rather than an international threat.
''It is not a ploy,'' Trebat said, referring to Suharto's recent motions
to establish a currency board. ''It is honestly an effort by Indonesian
corporations who are not viable at an exchange rate of 10,000 rupiah or
15,000 to the dollar.'' |
