Barry Porter, Jakarta – Indonesia's President Suharto is showing signs he may yield to mounting international pressure and postpone his controversial plan to introduce a Hong Kong-style currency board system.
German Finance Minister Theo Waigel emerged from a meeting with the Indonesian leader saying he had been given the impression that the plan was now under review.
New central bank governor Sjaril Sabirin came out of his inauguration by Mr Suharto yesterday saying a currency board was "just one method that could be used to stabilise the rupiah".
Even its leading advocate, Steve Hanke – the United States academic who had earlier sold the peg idea to Mr Suharto – is talking as if he now doubts the president's resolve.
Mr Hanke said he had been told by the president yesterday he would "continuously study" the idea.
Mr Hanke, a recently appointed special adviser to Mr Suharto, warned the president must act within four months or "it could be too late". Earlier this week, he was saying the system might be up and running within three weeks.
The International Monetary Fund, US, Japan and the European Union have strongly objected to the idea of Indonesia ushering in a currency board before it reforms its banking sector and addresses its huge corporate debt problem.
The IMF has gone as far as to threaten to withhold its US$43 billion international aid package to Indonesia, according to a leaked letter in the Washington Post.
In Moscow, IMF managing director Michel Camdessus said he hoped Indonesia's economic situation would quickly normalise.
"I hope we will stabilise Indonesia soon but nobody knows if this will happen again in another place," he said.
US State Department spokesman James Foley said: "Both the IMF and G7 [Group of Seven] states have expressed some concern about the risks involved in moving ahead with the currency board in the current context."
IMF officials said yesterday that a senior IMF adviser told Suharto in a meeting on Tuesday that the fund was not against a currency board in principle, but many issues needed to be sorted out or put in place first.
Andre Cita, associate director at Bahana Securities in Jakarta, said: "I think the IMF is in a position where it is likely to be harsh, given that it is being given some heat back home by its donor countries."
The Asian Development Bank appears to have put its $1.5 billion loan to Indonesia on hold, with a spokesman yesterday saying it was still talking to the government.
David Chang, head of research at Trimegah Securities, said: "I think everyone here likes the idea of a [currency board] but at this present time you would be committing suicide."
There are fears that if a board is launched now without popular support or adequate reserves it would be attacked by hedge funds, interest rates could rocket, and there could be a scramble by locals to sell rupiah for US dollars, which would fast eat up the country's foreign reserves.