Washington Post Wednesday, March 4, 1998
Rubin: IMF's Indonesia Bailout in Danger
By Paul Blustein
Washington Post Staff Writer
The Clinton administration edged closer yesterday to an open confrontation with Indonesia's President Suharto, hinting that the country's international bailout is in danger because Suharto is resisting the prescriptions of the International Monetary Fund.
Treasury Secretary Robert E. Rubin told a Senate hearing the IMF "is going to have to make a very difficult judgment" this month about whether to approve the next installment of Indonesia's $43 billion package of rescue loans. He added that "there have been a number of troubling reports" about Indonesia's failure to comply with the terms of its IMF rescue, an apparent reference to evidence that Suharto has been backsliding on promises to clean up the nation's system of "crony capitalism."
At the same hearing, Rubin's deputy, Lawrence H. Summers, said that while he could not predict whether the IMF will decide that Indonesia is not in compliance, "support can't flow unless they're doing the right things."
The Treasury officials carefully avoided explicitly threatening to use U.S. influence over the IMF to cut off bailout money. But their remarks provided the strongest evidence to date that the IMF board may refuse to release the next $3 billion installment in the loan package that is scheduled for approval on March 15.
The Indonesians received $3 billion in IMF loans last November, and by itself the loss of the next $3 billion would not matter much.
But a suspension of IMF support would deliver a crushing blow to the already-low level of investor confidence in Indonesia.
Riots over rising prices and joblessness have struck a number of Indonesian towns, and neighboring countries in Southeast Asia are fearful that they will be flooded with Indonesian refugees if the giant archipelago becomes much more unstable.
Damaging as the consequences of a cutoff might be, the IMF has used the tactic to force countries such as Russia, Egypt and Kenya back onto a reform track, Summers pointed out.
The comments by Rubin and Summers came a day after Walter F. Mondale, the former vice president, met with Suharto as a special emissary of President Clinton to urge compliance with the IMF program. A senior U.S. official said that although the two men had "a good serious conversation," Suharto "certainly didn't make any commitments," and the Indonesian leader also voiced his concern that the IMF rescue had failed to raise the value of the Indonesian rupiah from extremely depressed levels.
U.S. and IMF officials have been worried that Suharto may try to implement a fixed exchange-rate system for the rupiah that they consider unwise. But they have been particularly angered recently by his failure to follow through on promises to end monopolies and subsidies that benefit his friends and cronies.
Only six weeks ago, the Indonesian president pledged to eliminate a plywood cartel controlled by a tycoon friend of his and a clove cartel controlled by one of his sons, but government officials have allowed the cartels to continue operating, albeit under different guises.
A senior IMF official, who insisted on anonymity, yesterday echoed the sentiments expressed by Rubin and Summers. He said that for technical reasons, the fund's board would almost certainly be unable to approve the $3 billion installment on March 15 because Indonesia would be in the middle of a change of government.
But on more substantive grounds, he said, "we have a lot of negotiating to do before we get this review completed."
The official said that although Indonesia was apparently unable to meet IMF targets for cutting its budget deficit and maintaining a tight monetary policy, those failures "are an easily understandable problem" in view of the unexpectedly steep fall in the rupiah.
But he said the elimination of monopolies could have been done regardless of what was happening to the rupiah, "so that could be a tough one."
© Copyright 1998 The Washington Post Company
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