IMF Offers Face-Saving Proposal to Suharto --- Accord Would Postpone Planned Currency Board In Indonesia for Months
JAKARTA, Indonesia -- Officials of the International Monetary Fund here and in Washington held out hope of defusing a high-profile confrontation with President Suharto over the wisdom of adopting a currency board in Indonesia.</br></br>IMF officials are now talking hopefully about an agreement in principle that would allow Mr. Suharto to save face by keeping the currency-board option alive but delaying implementation of it until banking-sector and debt issues can be addressed. That could take at least six months, a near-eternity in the current crisis.</br></br>A currency board would take over the role of the central bank in strengthening Indonesia's currency, which has lost 73% of its value since last summer. Under a board, an approach used in Argentina and Hong Kong, a government pledges to buy its currency at a fixed rate against a designated foreign currency, in this case the U.S. dollar, and to hold enough foreign reserves to back all its currency in circulation.</br></br>The IMF, the U.S. and other donor countries have argued strongly against a currency board for Indonesia, saying it would do more harm to the economy than good unless banking and other economic reforms were fully in place.</br></br>"It is important to show that the currency board is something we could work for together in the future," a senior IMF official here said Wednesday.