[stop-imf] Important: IMF Tells Indonesia to Push Asset Sales, Forget Capital Controls

[Robert Weissman]

IMF Tells Indonesia to Push Asset Sales, Forget Capital Controls


June 5, 2000 

By Andi Asrun, Asian Assets Direct Correspondent

JAKARTA - Horst Koehler, on his first trip to Indonesia since becoming
managing director of the International Monetary Fund in March, urged the
government to speed up asset sales and forgo thoughts of introducing
capital controls.

"The president and I agree that there is an urgent need to accelerate
decision-making in IBRA," the Indonesian Bank Restructuring Agency,
Koehler said following Monday talks with Indonesian President Abdurrahman
Wahid.

"That means to sell assets and restructure enterprises and banks in order
to stimulate investment and economic activity," he said. "Further delay in
asset sales will lead to deterioration in asset values."

"There is also a need to set up an independent governing body to make
decisions rapidly (and without interference) from political interests," he
added, emphasizing what has become a top priority in the IMF's relations
with Indonesia.

Koehler said that capital controls "would hinder and suspend the economic
recovery."

That appeared to contradict earlier statements to the effect that controls
would no longer be considered "taboo" if they could be used to stabilize
local currencies in countries hit by the Asian financial crisis.

But IMF officials denied any inconsistency, saying Koehler's previous
remarks, made during a stopover in Bangkok last week, had been intended as
a general statement of principle.

For his part, Wahid blasted the press for suggesting he had taken his cue
from what Koehler had said and was proposing to implement controls.

"I never said that the government wants to impose capital controls," he
declared.

But Sofyan Wanandi, chairman of Wahid's team of economic advisers, said
that "as rumors of (imminent) capital controls spread, the rupiah became
stronger against the dollar. Capital controls can reduce speculation
against the rupiah."

Fairal Anwar, a stock market analyst, said that while capital controls
might be a drag on the stock market, it would be difficult to keep the
Indonesian currency stable so long as the government allows it to float
freely.

The IMF on Friday decided to release a $372 million installment from its
three-year, $5 billion dollar loan program for Indonesia and some
officials and currency market analysts suggested this would boost the
rupiah.

Anwar, however, said that "the disbursement of the loan can only make the
rupiah stronger for one or two days. Speculators can easily jolt it."

Dandosi Matram, an analyst at Bakrie Finance, added that controls would
dampen short-term portfolio flows but could help improve the longer-term
investment outlook.

"The free-float system has caused uncertainty for businessmen," he told
Asian Assets Direct. "They need a stable exchange rate."

Some U.S.-based market analysts agreed with the Indonesians but warned
that Indonesia's track record of economic policy implementation has been
too weak to inspire confidence in the government's ability to administer
capital controls.

News Editor Abid Aslam contributed to this report.
www.asianassetsdirect.com