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Call for a chat in Jakarta, and it could cost billions

Source
Sydney Morning Herald - October 30, 1997

When President Soeharto built himself a modern office block in the late 1960s, it was known for a time as the KISS building, an abbreviation of words borrowed from English – koordinasi, integrasi, stabilisasi and sinkronisasi. It was not long, however, before Indonesians were saying KISS stood for "ke istana sendiri-sendiri" – "to the palace one by one".

A politician of astuteness and craft, Soeharto is known as a man who can achieve remarkable results in an empat mata (four eyes) meeting.

His one-on-one abilities have been to the fore again this week as wrangling continues over the conditions to be attached to an IMF rescue package for the battered Indonesian economy.

The Singapore Prime Minister, Goh Chok Tong, recently called in for a chat with the President and came away with his arm up his back and a $US10 billion ($14.3 billion) hole in his national wallet. Malaysia's Deputy Prime Minister, Anwar Ibrahim, went in for a chat and came out minus $US1 billion.

Yesterday it was the turn of John Howard, who seems to have been a little more guarded - he said that while Canberra was willing to come to Indonesia's aid, it would do so within the framework of the IMF package.

All of a sudden, Soeharto has managed to put together an impressive line of credit from his friends. This has led some to speculate that he is preparing to dispense with the IMF, which wants a stringent overhaul of the Indonesian economy.

It is highly unlikely Soeharto will send the IMF away with a flea in its ear. If nothing else, that would send a terrible message to the market. But he does seem to playing hardball in an attempt to win lighter conditions from the fund.

Ideally, says an economist, "you need people sitting around a table discussing their contributions. To pick people off one by one unexpectedly is not so good. It's a pity the IMF package didn't get locked away before any of these meetings [with foreign leaders] took place."

Until recently, most observers thought Jakarta would end up with an IMF package not unlike that accepted by Thailand, which has been guaranteed $US17 billion, including $US1 billion from Australia. Indonesia did not need a large sum - unlike Thailand it had not squandered its reserves in a futile attempt to prop up its currency - and it is said the IMF was prepared to be quite generous, perhaps offering $US8-10 billion, with Japan chipping in a bit more.

Suddenly, every man and his dog seems to be getting in on the act, willingly or not. It isn't just the IMF plus the Japanese. It is those two, plus Singapore, plus Malaysia. Even the Americans have been floating around. Not to mention John Howard.

The Australian Reserve Bank has always taken the view that IMF conditions are an absolute essential of any rescue package for Indonesia.

That makes sense - it's no good putting up a large sum unless Jakarta agrees to make the necessary reforms. It is also important that the IMF provides a significant part of any rescue package – otherwise there is no truncheon with which to ensure compliance.

What is the IMF pushing for? It is unlikely the fund is calling for an end to Indonesia's $US1.3 billion national car project. Nor does it seem to be seeking an end to Jakarta's costly and controversial plans to build commercial passenger aircraft. Those two projects, which are close to the President's heart, may well collapse of their own accord.

But the IMF is thought to favour far-reaching reforms in the financial sector. It is also believed to be pushing for an end to "rent-seeking" monopolies in commodities such as wheat and sugar, which benefit one or two well-connected Indonesians at the expense of the wong cilik, or little people.

According to a source in Jakarta, Indonesia is seeking a standby credit of about $US17billion, of which about $US4.5-5 billion is expected to come from the IMF.

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