A delegation of American economic advisers will try to offer solutions to the financial upheaval in Indonesia.
With Asia's economic crisis threatening to set off political upheaval in Indonesia, a team of President Clinton's top aides arrived here Sunday evening and immediately began searching for ways to stop the free fall of the region's currencies and stock markets.
The officials met Sunday night with one of Asia's senior leaders, Lee Kuan Yew, the founder of modern Singapore. Both U.S. and Asian officials acknowledged that the potent mixture of Asia's continuing market panic and the sudden political uncertainties over the future of President Suharto of Indonesia will make the situation over the next several days particularly volatile.``This began as an economic crisis, but now it is having political and social consequences that are increasingly difficult to contain,' a senior adviser to Clinton, who spoke on condition of anonymity, said in Washington before the delegation of officials from the treasury, state and defense departments and the National Security Council was sent over the weekend.
``It has suddenly become an issue of stability and security,' added the official, noting how the stock and currency markets were both triggering and responding to the political uncertainties.
A result is that an array of officials are rushing to Jakarta, Indonesia's capital, to assess Suharto's economic intentions and his political future. The first to arrive was Stanley Fischer, the No. 2 official of the International Monetary Fund, which has made it clear that a $40 billion bailout program for Indonesia could be suspended if the country does not comply with its terms.
Today, the U.S. delegation, led by Deputy Treasury Secretary Lawrence Summers, is flying to Jakarta to meet with Suharto and his economic officials. On Tuesday, they will be joined by Defense Secretary William Cohen, who is on a previously scheduled Pacific tour. The director general of the IMF, Michel Camdessus, is expected later in the week.
On Sunday night, after seeking Lee's assessment of events in Indonesia and elsewhere, Summers offered few specifics about what he would seek to accomplish in Jakarta.
``We are here on behalf of the president to consult with the countries in the region on economic policy,' he said, measuring his words to keep from further roiling the markets, ``and to urge sound policies that can promote confidence and stability.'
Suharto is at the center of the concerns. Since taking power in 1965, he has governed the world's fourth most populous nation largely without challenge, enabling his children and friends to snap up the most lucrative of the country's huge infrastructure projects and export operations.
Despite the rampant corruption that has long made Indonesia an expensive place to do business in, private investors and major companies poured billions of dollars into the country - and into Suharto family enterprises - viewing it as one of Asia's fastest-growing and largest markets.
But economic crisis has resulted in a rapid turn of sentiment. And suddenly the ailing, 76-year-old leader is under pressure from three directions.
The markets battered Indonesia's currency with a fury last week, as investors sold it out of fear that the country's resistance to reforms dictated by the IMF could lead to the failure of the October bailout plan.
The hemorrhaging of the currency, in turn, has greatly raised the probability that Indonesian companies could default on the nation's foreign debt, which by most estimates is at least $80 billion. The weakness of the rupiah makes it far more difficult for Indonesian companies to pay back the loans. At current rates, repaying a loan that was made in dollars requires more than three times as much local currency as it did earlier this year.
The second pressure comes from the IMF and foreign leaders. In a phone call to Suharto on Thursday, Clinton stressed the importance of restoring market confidence by enforcing Indonesia's commitments to the IMF. But that means enforcing austerity in a country that despite its remarkable growth, still suffers from considerable poverty. Suharto reportedly told Clinton that he would enact the reforms.
On Saturday night, according to Indonesian news reports, he ordered the cancellation of billions of dollars in projects, including three power plants and an airport. But there are growing doubts about whether he will follow through.
The third pressure comes as a growing number of Indonesians, including retired generals and a few academics, are publicly calling for Suharto to step aside or designate a successor who could soon take over. Suharto faces re-election by a national assembly in March, which until a few weeks ago had appeared to be a perfunctory endorsement of his continued rule.
Many Asian officials say they believe that Suharto will remain in power. He still commands the loyalty of the military. And until now he has successfully kept a tight lid on dissent.
But Suharto was never challenged, in part because of the country's spectacular economic growth. Now, with that growth severely in jeopardy, the country's best-known opposition leader, Megawati Sukarnoputri, the daughter of former President Sukarno, called for Suharto to step down.
In his conversation with Suharto, Clinton reportedly raised the recent example of the bailout of South Korea. Korean banks are now working out an agreement with foreign lenders, including banking giants like Citibank and J.P. Morgan - to delay repayment of their debts and perhaps to issue bonds, guaranteed by the government, to restore a flow of capital into South Korea. The nation's currency has finally stabilized.
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