Washington Times, Feb. 17, 1998
JAKARTA, Indonesia - Indonesia appears set to thumb its nose at the United States and International Monetary Fund over the handling of its economic crisis and the choice of its next vice president, even as stepped-up violence has begun to claim lives.
That defiance sent the nation's currency, the rupiah, plunging by as much as 24 percent in trading yesterday, dragging other Asian currencies and stocks down with it. The turmoil also spread through European stock markets, though the rupiah recovered somewhat to close at 9,800 to the dollar in Jakarta.
At issue is the international financial community's rejection of a plan by President Suharto to establish a currency board on the model of Hong Kong and try to peg the rupiah to the U.S. dollar.
The International Monetary Fund is reportedly threatening to withhold $3 billion in payments if Suharto does not kill the plan, which it fears would undermine economic recovery.
The rupiah dramatically strengthened when Indonesia announced the plan last week, but it began sliding at week's end in the face of criticism from overseas experts. President Clinton called Suharto on Friday to add his voice to the chorus of opposition from international financial circles.
"Suharto has been making dark mutterings about foreign conspiracies lately," observed a Jakarta-based financial analyst. "This plays right into that and turns the whole thing into `us versus them.' "
"The problem is," countered a Western diplomat, "while a confrontation might make him look like David facing Goliath in the short term, it's hard to see how it won't send what's left of the economy into a tailspin."
The government hopes to use the currency board to stabilize the rupiah at a rate of about 5,000 to the dollar. Foreign experts fear that would come at a huge economic cost.
"The big boys would be able to service their offshore debts, but at the price of runaway inflation that would most hurt the masses," said another broker.
Underscoring the danger of further economic collapse, the level of unrest mounted yesterday with new rioting reported in several villages across the huge archipelago.
Gen. Wiranto, a former personal aide to Suharto, took over yesterday as chief of the armed forces. He told reporters his troops stood ready to protect national stability.
Two persons were killed over the weekend in fresh outbreaks of violence on the tourist island of Lombok, bringing the nationwide death toll to five.
Public transport in many areas ground to a halt because drivers feared attack, while the army patrolled the streets of the West Java city of Bandung amid rumors that new riots were imminent.
Hundreds of shops have been destroyed and dozens of people injured since last month in sporadic clashes prompted by food and fuel shortages, rising prices and growing unemployment.
The government estimates 10 percent of the 90 million-person workforce will be jobless by year's end.
Price caps on key commodities are scheduled to be lifted shortly after the March presidential election, in which Suharto is expected to be returned to a seventh five-year term.
Confidence was further sapped yesterday when the last of the three major political parties endorsed for the vice presidency Technology Minister B.J. Habibie, known for his devotion to big-ticket projects and unusual economic theories.
When Mr. Habibie's name first surfaced last month, the rupiah plunged to a historic low.
Singapore founding father Lee Kwan Yew has expressed concerns about the economic impact a Habibie vice presidency would have on the region, while in an apparent slap at the technology minister, IMF First Deputy Managing Director Stanley Fischer last week warned Indonesia against choosing a vice president whose devotion to new ways of doing things is limited
Credit: SPECIAL TO THE WASHINGTON TIMES
Copyright Washington Times Library Feb 17, 1998
