[IWAR] INDONESIA economic sitrep

From: 7Pillars Partners (partnersat_private)
Date: Wed Jan 21 1998 - 16:36:18 PST

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    Indonesia Battered Again by Debt, Politics
       By Raju Gopalakrishnan
       JAKARTA, Indonesia (Reuters) - Indonesia was sucked deeper into a
       financial and political morass Wednesday by worries over indebtedness
       and fresh calls for President Suharto to quit.
       The battered rupiah currency fell to a record low of 12,000 to the
       dollar from Tuesday's close of 9,850, down 80 percent from about 2,400
       six months ago and researchers attached to a government institution
       joined a growing chorus calling for Suharto's to stepp down.
       Currency dealers said hints that Research and Technology Minister Jusuf
       Habibie, 61, may be Suharto's preferred vice-presidential candidate, and
       therefore his potential successor, had an overwhelmingly negative effect
       on the rupiah.
       Suharto Tuesday announced his intention to seek a new term in March
       There was mounting concern that banks and companies were finding it
       difficult to meet dollar obligations.
       Indonesian companies were settling their dollar debt in rupiah, leading
       to creditors offloading the currency and trapping it in a downward
       spiral, dealers said.
       But there were no reports of fresh unrest. When the rupiah first fell
       below 10,000 to the dollar earlier in the month, people bought up food,
       fearing hyper-inflation in the nation of 200 million people, the world's
       fourth most populous. Some shops in eastern Java were looted.
       In Washington, IMF First Deputy Managing Director Stanley Fischer said
       the agency was working with Indonesia to cope with the country's
       corporate debt.
       Indonesia agreed with the International Monetary Fund last week on an
       accelerated reform package in exchange for a $43 billion bail-out plan
       drawn up in October.
       Wednesday, Suharto issued a series of decrees formalizing the IMF
       reforms while Finance Minister Mar'ie Muhammad said a revised 1998/99
       budget, reflecting some of the restructuring, would be announced in two
       But markets were weighed down by Indonesia's $140 billion external debt,
       of which corporate debt forms an estimated $66 billion.
       "Together with the Indonesians, we are thinking about next steps in
       dealing with the corporate debt problem," Fischer told CNN. He did not
       IMF Managing Director Michel Camdessus said the Indonesian rupiah was
       "significantly undervalued" but he believed the reforms should help it
       "It is significantly undervalued and I believe that over time the rupiah
       should go back to a more acceptable, let's say, range," Camdessus told
       reporters during a visit to the European Parliament in Brussels.
       But Indonesian politics, specifically Suharto's running mate, were at
       the forefront of market focus during the day.
       Ruling Golkar party chief Harmoko, after meeting Suharto Tuesday, listed
       a series of qualities any vice-presidential candidate must possess.
       These included a knowledge of science, technology and industry, all of
       which indicated that Habibie could be the preferred man, analysts said.
       No decision on the candidate has yet been taken, although the
       pro-government Indonesian Observer newspaper carried a front-page
       photograph of both Habibie and Suharto Wednesday calling them the
       "Dynamic Duo."
       Harmoko said Suharto, 76, agreed to be nominated for a seventh five-year
       term despite unprecedented calls for him to step down due to perceptions
       he has mismanaged the economic crisis.
       A group of state researchers accused the government Wednesday of failing
       to resolve Indonesia's financial woes and urged Suharto to step down.
       "We have concluded that the crisis battering the country is more than an
       economic problem. What we are experiencing now is a crisis of dignity,"
       one of the researchers, M. Riefqi Muna, told Reuters, quoting a
       statement issued by the group.
       The comments by the 19 researchers at the state-run Indonesian Institute
       of Sciences mark rare dissent from the government apparatus. The
       researchers are members of the Indonesian Civil Servants Corps.
       Habibie has been closely associated with state plane manufacturer IPTN,
       which economists have said is a prime example of Indonesia's wasteful
       expenditure. Government support for IPTN has been cut off under the IMF
       Also, Habibie is a civilian and unlikely to have the support of the
       country's powerful military. However, he is considered extremely close
       to Suharto, a former army general.
       Markets gave his possible candidacy the thumbs-down.
       "Is he the kind of person the market wants because of the IMF terms of
       austerity, and also does the army want him?" questioned Callum
       Henderson, managing analyst at MMS International in Hong Kong. "These
       are the issues markets are focused on right now."

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