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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Worswick who wrote (2205)	2/16/1998 1:30:00 PM
From: Bucky Katt	Read Replies (1) \| Respond to of 9980

The head of the International Monetary Fund warned Monday that Indonesia's plan to peg its battered currency to the U.S. dollar could ruin the country's chances of economic recovery. IMF Managing Director Michel Camdessus said he told President Suharto the fund's $43 billion rescue package for Indonesia would be jeopardized if the proposal to create a currency board for the rupiah goes ahead. "A currency board at this moment in Indonesia would be premature,'' Camdessus said after meeting European Union finance ministers. "It is radical, strong medicine - when the patient is very ill you could kill him with this medicine.'' Camdessus' fears were echoed by the EU ministers, who unanimously agreed the time was not right for Indonesia to try to stabilize its currency by tying it to the dollar. "The IMF's attitude in the matter of the currency board is the right one,'' said Britain's Chancellor of the Exchequer, Gordon Brown. Brown served as chairman for the meeting between Camdessus and the 15 EU ministers, which was called to discuss the fallout from Asia's currency crash and consider ways to prevent a repeat. They agreed stricter banking regulations and greater openness in economic policy decisions were needed to keep governments and markets informed of the dangers of pending crises. "There is a need for transparency (and) reform of banking supervision,'' Brown said. "This is something important right across the world but with particular regard to the Asian situation.'' EU ministers continued to play down the Asian crisis' potential for upsetting Europe's economic recovery. "The effect will be rather limited,'' said Dutch Finance Minister Gerrit Zalm. The EU's executive body, the European Commission, said the Asian crisis could shave 0.2 of a percentage point off EU economic growth this year. According to the commission's estimates, that would still see the EU economy growing by 2.8 percent, its best yearly rate since 1994. The EU expressed strong backing for the IMF's efforts to hold the line in Asia, including the $100 billion the fund has assembled to help South Korea, Indonesia and Thailand overcome the impact of plunging currencies and stock markets. On Indonesia, Camdessus said he had told Suharto there was a "very high risk'' the IMF's executive board would interrupt the financial help to Indonesia if the plan to link the rupiah to the dollar went ahead. "Going to a currency board without consultation with the IMF ... would be a violation of our arrangement,'' Camdessus said. For the plan to fulfill its purpose of stabilizing the currency, Camdessus said Indonesia would need strong foreign currency reserves, a robust banking system and the ability to withstand very high interest rates. "These elements are not yet there in Indonesia,'' he said. In an effort to stem rising social unrest over rising food prices, Camdessus said some countries were considering trade credits for Indonesia to enable it to import basic necessities such as food and medicine. Brown said he was meeting Tuesday with World Bank President James Wolfensohn to discuss international help to ease the hardship in the world's fourth-most-populous nation.