February 15, 1998 in Nation/World

Clinton Warns That Currency Plan Imperils Bailout

David E. Sanger New York Times
 

President Clinton called President Suharto of Indonesia on Friday night and warned him that Indonesia was once again on the verge of action that could imperil the $43 billion bailout of the country.

White House officials said Saturday that Clinton stopped just short of threatening to cut off aid if Suharto proceeds with a plan to change radically the way the country values its currency.

But the stakes were as much political as economic: Few experts doubt that withdrawal of the aid package, which was organized by the International Monetary Fund, would greatly aggravate Indonesia’s economic turmoil, fueling the price riots that are breaking out.

The 30-minute call came just after Michel Camdessus, the managing director of the IMF, warned Suharto that Indonesia was close to violating the conditions of a pact the two men signed a month ago - the second such accord since October.

Suharto has proposed a currency board, which would lock in an exchange rate for the rupiah that the fund fears could lead to sky-high interest rates and much wider unemployment. Currency boards have been successful in restoring economic discipline when used at a time of stability. Washington worries that in Indonesia, the effort would collapse after draining the last of Indonesia’s $20 billion in foreign reserves.

If Suharto set up a currency board, Camdessus wrote, “we would not be able to recommend to the IMF board the continuation of the present program because of the risks to the Indonesian economy.”

But the deeper fear is that the monetary plan would strengthen the rupiah currency just long enough for Suharto’s children and friends to convert their fortunes into dollars at a favorable rate and sweep the money out of the country.


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