Andrew Marshall, Jakarta – Indonesia's next government has yet to emerge from the murk of drawn-out vote counting and political horsetrading, but one crucial member of its economic policy-making team is already known – the IMF.

The International Monetary Fund holds the purse strings for the foreign money Indonesia desperately needs. It has already co-ordinated a bail-out package of more than $45 billion. And it has all the power it needs to block policies it disapproves of.

The election front-runner, the Indonesian Democratic Party - Struggle (PDI-P) of opposition figurehead Megawati Sukarnoputri, has already spooked markets by proposing a fixed exchange rate.

But PDI-P chief economic adviser Kwik Kian Gie has said a fixed rate would only be introduced if the IMF agreed. Analysts say the chances of this are practically zero.

"If the IMF were to agree to this they would lose all their credibility in the handling of the Indonesian crisis," said the head of treasury at a foreign bank in Jakarta. "There is no way that the IMF would allow it."

Kwik has made clear the PDI-P would not take a stand against the IMF. "A fixed rate is not everything for us," he told Reuters in an interview in Singapore. "The whole package is very important. There is no way we will break up with the IMF."

The IMF also plays down the prospect of a confrontation. "There will be no showdown," said Kadhim Al-Eyd, senior representative of the IMF in Jakarta. "The PDI-P have said some aspects of the programme may need to be changed and we agree with that. But everything will be discussed. This issue has been blown up out of proportion."

Kwik argues that temporarily fixing the rupiah at 5,000 to the dollar would help debt-ridden firms pay off their liabilities and cut the price of imported inputs, allowing prices of manufactured goods to fall and consumption to rise. He says when stability returned, the currency could be floated again.

Another senior PDI-P economic adviser, Laksamana Sukardi, said a fixed rate would only work under conditions which were currently impossible to meet, such as large currency reserves.

The argument for a fixed rate commands some support, particularly among Indonesian economists who say the rupiah's collapse over the last two years had little to do with fundamentals and may have to be reversed by artificial methods. Analysts agree that a firmer rupiah would make it easier to break Indonesia's corporate debt deadlock.

But many remain deeply sceptical about fixing the rate. "A fixed exchange rate would only cause any remaining capital in Indonesia to get out," the head of treasury said.

"If they are going to try an export-driven recovery they should not be trying to lift the rupiah. Many of Indonesia's exports have little value-addition so they are competing purely on price. Exchange controls would have an impact on export-driven recovery, which is the direction they ought to be taking."

The IMF has consistently stood against any form of capital controls for Indonesia. Former president Suharto came under fire last year from the IMF and US government when he flirted with the idea of a currency board system to halt the rupiah's slide. The plan was never adopted. When rumours of imminent capital controls resurfaced later in 1998, the IMF was quick to quash them.

Kwik has acknowledged that Indonesia has no choice but to keep the IMF on board. "Why should we have to deal with the IMF? Because if not, we will not have the funds to restart the economic wheel moving again," he wrote in the Kompas daily this week.

Whatever the merits of a fixed exchange rate, this reliance on the IMF means it will never see the light of day. "Given the country's weak economic position and its dearth of foreign exchange reserves, defending a fixed exchange rate would provide a serious policy challenge to the new government," Warburg Dillion Read said in a research report.

"[But] given Indonesia's urgent need for large inflows of foreign capital for the foreseeable future ... we believe the next government is likely to have little alternative to pursuing responsible, investor-friendly economic policies."