The International Monetary Fund and the United States are to send officials to Indonesia to try to speed up a programme of economic reform and calm mounting panic over crumbling stock and currency markets throughout south-east Asia.
In a mark of sudden western concern over the rapidly-deteriorating situation in Asia, President Clinton telephoned the Indonesian President, Mr Suharto - facing the gravest economic and political crisis of his 32-year rule - and the Singapore Prime Minister, Mr Goh Chok Tong, to underscore the importance of the region to the United States.
Asian currency trading was described as "petrified" yesterday amid near-hysteria in the markets about the meltdown in Indonesia, which is rumoured to be on the verge of declaring a debt moratorium or introducing trading curbs on the rupiah. Ironically, as Asian stock markets were ravaged due to the collapse of confidence in Indonesia, the Jakarta market itself rallied. The Indonesian rupiah rose an astonishing 30 per cent against the dollar yesterday morning after dollar selling by state banks combined with follow through selling from Singapore.
There were also rumours of intervention by the US Federal Reserve and the immediate release of the second $3.0 billion tranche of $10 billion IMF loans pledged to Indonesia.
Markets elsewhere tumbled in a wave of panic selling. Shares in Singapore, which has close economic ties with Indonesia, fell 7.43 per cent. In the Philippines the market lost 10.55 per cent. Hong Kong stocks plunged 3.89 per cent, ending the week down 16.7 per cent. President Clinton spoke to Singapore's Prime Minister for about 12 minutes and to Indonesia's President for about 25 minutes, the White House said.
In order to consult further on the current economic situation, the US Deputy Secretary of the Treasury, Mr Larry Summers, along with representatives from the State Department and the National Security Council, will travel to the region shortly, White House press secretary Mr Mike McCurry told reporter. The IMF made it clear the visit by two top officials, brought forward by two weeks, was designed to impress upon Indonesia that further payments of the IMF's $40 billion rescue package would depend on the successful implementation of the reform programme dictated by the IMF to eliminate wasteful projects and break up monopolies.
Mr Stanley Fischer, the IMF's first deputy managing director, told CNN television: "We'd like to accelerate the programme and strengthen it because a lot of people believe the Indonesian government wasn't really committed to the programme. The programme cannot go ahead if the Indonesian government isn't supporting the measures that it said it would do," he said. Indonesia promised reforms when it asked the IMF for help two months ago but it never recovered market confidence and there are now mounting fears about political unrest and a debt moratorium. Mr Fischer said. "I think that after discussions with them and after reviewing the situation, we will be well back on track and that the next tranche of the programme will be disbursed. Indonesia has already received $3 billion of the IMF money, and a further $3 billion will be available after March 15th.
The United States has undertaken to contribute $3 billion to the Indonesian fund if required. Indonesia may, however, be unable to prevent calling a moratorium on its massive public and private debts believed to total $133 billion. A western banker in Singapore yesterday told the Irish Times: "This would be a very serious step indeed. People would never forget. They still don't trust South America."
Some Latin American countries called a moratorium on debts in the 1980s, and have since publicly expressed regret that they restructure debt instead. Dollar sales by state banks in Jakarta and follow-through selling by Singapore operators helped the rupiah rebound more than 30 per cent to 7,900 per dollar from its opening around 10,500/11,500.
News that Mr Summers would soon visit Indonesia and other Asian countries also helped calm Indonesian markets. The US treasury official has called on Jakarta to step up efforts to convince markets it is committed to IMF-sponsored economic reforms. In Malaysian the ringgit firmed slightly following intervention by the central bank and a statement from the Prime Minister, Mr Mahathir Mohamad, that the country did not need IMF help. He said Kuala Lumpur had sufficient reserves to defend the ringgit and that depositor funds were safe. Malaysia also announced a trade surplus of 700 million ringgit for November compared with a 500 million ringgit deficit the year before.
