Albion Monitor /News

Panic in Indonesia

Monitor Wire Services

on the collapse of Indonesia's economy and related article on Suharto's decline
Pressured by Clinton and the International Monetary Fund, Indonesian President Suharto pledged Friday to apply tough economic reforms to his country's staggering economy, as rumors of economic and political instability cause panic.

On Thursday, rumors circulated throughout the country about economic and political unrest and the military tried to ensure civil stability. Despite the claims of stability the people flooded stores to buy staples in fear of price increases.

The ailing 76-year-old Suharto, who has ruled this sprawling nation with a firm hand for 30 years, announced his move as calls appeared in the nation's media for his resignation and the military braced for possible unrest.

Clinton became so concerned about the ability of the Indonesian government and corporations to meet their financial obligations and the impact it would have on the world's economy that he called Suharto from Air Force One Thursday night and talked with him for 25 minutes.

"The president made it quite clear that the IMF program of reforms needs to be followed," a senior U.S. official told Reuters.

The IMF announced a $43 billion rescue package for Indonesia in October but Suharto has been criticized for not carrying out the tough reforms called for in the deal.

Indonesian State Secretary Murdiono, however, told reporters Friday that, "the president is determined to implement seriously our program which has been supported by the IMF." There were no details released on how this would be done, however.

The announcement by Murdiono helped steady Indonesia's financial markets Friday after a huge drop on Thursday. Indonesia's currency has lost 70 percent of its value since July.

The rupiah, Indonesia's currency, reached a startling low of 10,550 to the U.S .dollar.

Teams from both the U.S. Treasury Department and the IMF are rushing to Indonesia to assess the crisis.

Reacting to the spreading financial shakiness in Indonesia and the rest of Asia, the U.S. stock market dropped 220 points Friday and was down 385 for the weekly, the biggest one-week drop in U.S. history.

The military said it would crush any disturbances
The Indonesian financial crisis took a dramatic turn on Tuesday after Suharto released his 1998 - 99 budget without specific proposals to carry out the reforms demanded by the IMF. Indonesia has a $133.3 billion foreign debt and there were rumors Friday that the country may declare a moratorium on these obligations.

Moody's Investors Service Friday downgraded Indonesia's credit rating and its managing director, Vincent Truglia, said that, "You're going to be getting increasing defaults by Indonesian corporates. As a result, you've got to have increasing pressuring on nonperforming assets in the banking system, and that's going to add pressure on the ability of banks to finance themselves."

Pressure for Suharto to step down escalated Friday. Ironically, Suharto came to power as the country was on the verge of bankruptcy under its founding president, Sukarno.

Mohammad Sadi, a former cabinet minister, was quoted in the Jakarta Post as saying, "the existing government must be replaced."

In another article in the Post, political scientist Arbi Sanit also said it was time for Suharto, a former army general, to leave.

International financier George Soros, who made a fortune buying and selling money, said in Cambridge, Mass. that the currency crisis in Indonesia is worse than the South Korea situation, which also has brought a rescue plan from the IMF.

"Korea, rather luckily, has got a new president, who is eager to change the system," Soros said. "In Indonesia you've got the same old corrupt regime."

Much of the charges of corruption has centered around Suharto's family, which has vast holdings throughout the country.

In a public relations gesture Friday to bolster confidence in the nation's currency, Suharto's eldest daughter, Siti Hardianti Rukmana, exchanged dollars for rupiahs at a state-owned bank. Aides said she exchanged $50,000.

The military -- a powerful force in this nation -- said it would crush any disturbances, but there was no increase of troops in Jakarta, the capital city with a population of 10 million people.

Information Minister R. Hartono tried to reassure the nation that there was no danger of a military coup. "Never in this republic will such a thing happen," Hartono told the Antara News Agency.

Also contributing to the crisis is concern for Suharto's health. He has been President for thirty years and is expected to seek a seventh term on March 11. But despite recent illness -- and even rumors of his death -- no designated successor waits in the wings. Suharto has not named a successor and has not had the same running mate twice. If he left office suddenly there is no one ready to take up the leadership.

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Albion Monitor January 12, 1998 (

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