Rupiah Slumps 13% Amid Stalled Reforms
International Herald Tribune
March 6, 1998
Thomas Crampton 

The Indonesian rupiah tumbled 13 percent Thursday against the dollar as international pressure mounted on Jakarta to speed economic reforms and preserve the country's $43 billion aid package from the International Monetary Fund.

The U.S. dollar rose to 10,300 rupiah on Thursday from 9,150 on Wednesday.

Concern over Indonesia also helped drag down the currencies of Malaysia, Thailand, Singapore and the Philippines, a slide that brought to an end several weeks of relative calm among Asia's troubled economies.

In a meeting with President Suharto on Thursday, an envoy representing Britain and the European Union stressed the need for Indonesia to stick to IMF reforms.

"I urged the president to follow the IMF program," said Derek Fatchett, a junior foreign office minister who is also an EU emissary. "It is important that that should happen because that is the way to restore confidence into the markets."

The warning to Indonesia came as Thailand received a new round of support from the United States and Japan after approval of more funds to be disbursed under its $17.2 billion IMF aid package.

The widening divergence between Asian economies' responses to the currency crisis has led many analysts to divide the region into two clear categories: Indonesia and all the rest.

"Thailand and Korea are both moving ahead and adjusting to the reality of the situation," said Guonan Ma, head of Asia-Pacific economics research at Salomon Smith Barney. "I just don't see any signs of things getting better in Indonesia."

The division between the economies will be seen by the diminished impact felt on other currencies when the rupiah falls, said Neil Saker, head of regional economic research at Soc-Gen Crosby Securities. "A fall of the rupiah now will not pull down other currencies as much as it could a few months ago."

In the period since IMF-required reforms have been implemented, financial markets have made harsh judgments of economic performance. The main stock indexes in South Korea and Thailand have risen by about 50 percent in dollar terms since the beginning of this year, while Indonesian stocks have fallen more than 30 percent in the same period.

[Underscoring the economic uncertainties, though, South Korean stocks tumbled Thursday by their largest margin so far this year as profit-taking by foreign investors spread to panic selling by local investors, The New York Times reported from Seoul. The Korea Composite Stock Index fell 6.5 percent to 535.68. ]

"The G-7 is now taking a carrot-and-stick approach to the crisis, with not-so-veiled threats or rewards for good behavior," Mr. Saker said, referring to the Group of Seven nations.

As the IMF announced late Wednesday a $270 million loan would be released to Thailand, the U.S. Treasury secretary, Robert Rubin, said that Washington would be willing to support a request for additional funding "if circumstances warrant."

On Thursday, Finance Minister Hikaru Matsunaga of Japan said Tokyo intended to provide $600 million worth of loans to help Thai export financing. This new aid would be in addition to an ongoing IMF loan worth $4 billion through the Ex-Im Bank.

Also on Thursday, Prime Minister Mahathir bin Mohamad of Malaysia said that Taiwan was in a "very good position" to help stimulate the battered economies of Southeast Asia, Agence France-Presse reported from Kuala Lumpur.

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