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Rupiah drops on fears for Soeharto

Sydney Morning Herald - December 10, 1997

Louise Williams, Jakarta – The Indonesian rupiah plunged more than 10 per cent yesterday amid growing concerns over President Soeharto's health and warnings of a loss of confidence in the Indonesian economy despite multi-billion dollar rescue loans by the International Monetary Fund.

Rumours that the President had died of a stroke led to a highly unusual denial last night by the State Secretary, Mr Moerdiono, who said Mr Soeharto was in good health.

The rupiah dropped 10.3 per cent to 4,595 to the US dollar yesterday. Since the beginning of the year, the currency has lost 48 per cent of its value, and the Jakarta stock market has had more than 40 per cent wiped off its value.

The immediate cause of the rupiah's sharp drop was the fears over the health of Mr Soeharto, 76, who is taking 10 days off to rest, suffering exhaustion following an overseas tour.

After 30 years in power, Mr Soeharto has named no successor and all major decisions are referred to him, leaving Indonesia vulnerable to the state of his health. In business, the President's children have built corporate empires and most members of the business elite owe their success to their political connections.

However, the sliding confidence in the Indonesian economy, once considered one of the most stable in the region, also reflects disappointment among foreign investors over slow implementation of the terms of the IMF rescue package.

The IMF announced a $US38 billion ($56 billion) rescue package six weeks ago, but critics say the Soeharto Government has done little to push for reforms of the economy to tackle chronic nepotism and corruption.

"Confidence is a relative concept and while every other government in the region appears to be making the right moves, this one hasn't," said a Jakarta-based economist, Mr Michael Backmann.

"There is little transparency at the top, there is an aging president with no obvious successor, the economy is highly politicised and there is next to nothing in terms of legal guarantees for foreign investors."

Mr Backmann said the regional currency crisis was producing reforms in Malaysia, for example, where the ringgit rose for the second consecutive trading day.

Indonesia, however, has released few details of its intended reforms under the IMF program. The jitters were exacerbated by Monday's devastating fire in the Bank of Indonesia's new complex, a symbol of past prosperity and confidence. At least 15 people died and the top 10 floors of the glass-faced skyscraper were destroyed.