Indonesia Bailout Uses U.S. Funds

The International Monetary Fund announced a $23 billion economic rescue package for Indonesia on Friday, the second-largest such bailout in history, as authorities scrambled to contain a currency crisis that has rattled financial markets from Tokyo to New York.

The United States said it would provide backup assistance, a reversal for the Clinton administration, which had refused to participate directly in a $17.5 billion rescue effort for Thailand two months ago because of controversy generated by the 1995 U.S. bailout of Mexico.

Both the administration and Federal Reserve Chairman Alan Greenspan had become increasingly worried in recent days that the continuing economic turmoil in Southeast Asia was threatening to destabilize financial markets worldwide.

A severe plunge of the Hong Kong stock market last week was the triggering event for Monday’s record 554-point stock loss on Wall Street, dramatically underscoring how interconnected the world economy has become.

The IMF package of $23 billion for Indonesia, which has the world’s fourth-largest population, will be backed up by $3 billion in U.S. loans plus additional assistance from Japan, China, Singapore, Malaysia, Hong Kong and Australia.

Treasury Secretary Robert Rubin, in announcing the administration’s decision, emphasized that direct U.S. loans would serve only as a second line of defense should the initial $23 billion fail to stabilize the economic situation in Indonesia. But he in sisted that American businesses and workers have a lot at stake.

The package of initial and backup support was expected to total more than $35 billion, making it the second-largest rescue package in IMF history after the $50 billion made available for Mexico.

The administration took the lead in putting together the Mexican assistance package; some European nations went along reluctantly. When Congress balked, President Clinton exercised his authority to use the Exchange Stabilization Fund, created in the 1930s to support the dollar.

U.S. support for Mexico ultimately totaled $12 billion in loans, which Mexico finished paying back earlier this year.

The administration said it would use the same stabilization fund for the $3 billion for Indonesia. Sen. Alfonse D’Amato, R-N.Y., chairman of the Senate Banking Committee and House Banking Committee chairman, Rep. Jim Leach, R-Iowa, voiced.

But conservative commentator Pat Buchanan, a leading opponent of the 1995 rescue effort for Mexico, said it was an “outrage that American taxpayers are being put on the hook again to bail out these corrupt and incompetent governments.”

IMF Managing Director Michel Camdessus said the IMF will provide the largest share of the package, $10 billion, with $4.5 billion coming from the World Bank, $3.5 billion from the Asian Development Bank and $5 billion from Indonesia’s own assets.

In exchange for the economic support, Indonesia agreed to a series of economic reforms, including shutting unhealthy banks, reducing food subsidies, removing trade barriers and ending inefficient state monopolies.

Indonesian President Suharto, 76, who has governed the country for 32 years, has tolerated little political dissent but until earlier this year when speculators pounded the Indonesian currency, he had been able to deliver sustained economic development.

Critics complain that the Indonesian economy is dominated by a small group of his family members and associates who run state monopolies and other inefficient industries.

Indonesia becomes the third Asian nation this year to seek IMF assistance. In July, the IMF approved a $1 billion loan for the Philippines and in August put together a $17.5 billion package for Thailand.