Suharto snubs IMF's plan to save Indonesia

INDONESIA faced the threat of more economic turmoil yesterday after President Suharto suggested he might reject the IMF $43bn (pounds 27bn) rescue plan.

The announcement brings into the open a worsening confrontation between Indonesia and the International Monetary Fund, and is likely to lead to turmoil on the international currency markets, where the Indonesian rupiah has lost 70 per cent of its value since last summer. As a result, the price of food and imported goods has shot up, companies have gone bankrupt, and unemployment has risen, provoking riots, protests and demonstrations.

President Suharto told Indonesian MPs that the IMF's insistence on opening up Indonesia's highly regulated and protected economy to foreign competition contradicted the constitution, a vague document which has been used before to justify the President's personal decisions.

"He [Suharto] said the IMF package and the IMF requests are aiming for a liberal economy, which did not agree with article 33," said Yusuf Syakir, a party leader who was visiting the President in advance of his expected re-election tomorrow. "The article says Indonesia's economy should be arranged and managed by a family system", he added.

The statement came at the end of a tense week, in which a succession of Western visitors tried to persuade Indonesia's strongman to abide by the IMF agreement. The weekend before, President Suharto gave a speech complaining that the IMF plan was not working. The IMF programme would involve banking reforms, cuts to public spending and the abolition of monopolies and cartels, many of which are run by the Suharto family.

"The President told me they were committed to the programme and I hope that is the case," said British foreign office minister Derek Fatchett after meeting the President and presenting a letter from Tony Blair.

At the end of the week, the Indonesian finance minister, Mar'ie Muhammad made a veiled threat, suggesting any delay in IMF payments to Indonesia could have a "negative effect" on other South East Asian currencies. In spite of the threat, the IMF on Saturday said the next installment of $3bn would not be made before April.

The IMF plan aims to modernise and increase the efficiency of the Indonesian economy. But, like similar programmes in Thailand and South Korea, it would entail hardship, including bankruptcies and higher prices for previously subsidised foodstuffs.

The Suharto government fears the effect of these price increases on the country's restive 200 million people. It appears to have decided that the short-term cost of the IMF plan outweighs the long-term benefits. Without the support of the IMF, the rupiah is likely to fall further, intensifying pressure on Indonesian banks and businesses.