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RI urged to take IMF medicine

Translator

Editor

13 August 2003 09:26 WIB

TEMPO Interactive, Jakarta:LONDON (Agencies): Indonesia came under strong pressure from the Group of Seven (G-7) leading industrial nations over the weekend to carry out reforms stipulated under an IMF economic rescue package and to shelve its fixed peg plan.

Although the final communique issued after a one-day summit of G-7 financial leaders here on Saturday made no specific mention of the economic turmoil in Indonesia, several finance ministers took a tough line in press conferences after the meeting.

U.S. Treasury Secretary Robert Rubin said there had been "extensive discussions" on Indonesia and "there was a unanimous view amongst all seven of us" that Jakarta must carry out "effective reform."

He pointedly praised South Korea and Thailand for implementing "on a sustained basis" reforms aimed at restoring their battered economies and said that Indonesia must implement the IMF program is such a way that the markets believe in it.

The "crucial step" for Indonesia now is "sustained adherence to the IMF program," Rubin said, but he warned that there would have to be 'wrenching changes" if the country was to emerge from the crisis.

Other G-7 finance ministers also gave their unqualified support to the IMF, which wants Indonesian President Soeharto to implement tough reforms in exchange for a US$43 billion rescue package.

Gordon Brown, the British finance minister said the G-7 was calling on Jakarta to give up the idea of pegging its battered currency to the U.S. dollar and to stick to the IMF medicine.

Soeharto, whose government faces widespread rioting over prices, is threatening to introduce a currency board to prop up the badly weak-ened rupiah, a measure the IMF says Indonesia is not ready for.

Brown said the G-7 had stated its "support for the IMF view that it is not the appropriate time for a currency board to be established" in Indonesia.

"We were of the view that the Indonesian government must implement the IMF program and that they must take the actions necessary to strengthen their financial institutions," Brown told reporters.

Investors fear that using scarce government resources to peg the rupiah to the dollar could interfere with other essential objectives, such as growth, reasonable interest rates and employment stability.

IMF Managing Director Michel Camdessus warned last week that the $43 billion IMF-arranged rescue package for Indonesia could be jeopardized if Soeharto went ahead and established the currency board.

Brown said that the G-7 countries -- the United States, Japan, Germany, France Britain, Italy and Canada-viewed the reform measures as "part of the conditions necessary that had to be met for a restoration in confidence" in Indonesia.

German Finance Minister Theo Waigel also hammered home the same message.

Indonesia can overcome its economic crisis if proposed IMF reforms are "strictly applied," said Waigel, speaking to reporters after the end of a one-day meeting of the G7 finance ministers and central bank governors.

The finance minister, who was returning from a tour of Asia, praised South Korea and Thailand's reform efforts but said that new turmoil in Indonesia could not be ruled out if Jakarta did not get its economy under control.

Waigel said he had told the G-7 that the overall impression he had gained during his trip was that Korea and Thailand were now seeing positive developments.

"But the situation is different in Indonesia," he said.

He repeated that Indonesia's plans to set up a currency board -- linking its currency the rupiah to a major currency such as the dollar -- had created concern.



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