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Indonesia’s Currency Value Sinks

January 9, 1998

JAKARTA, Indonesia (AP) _ Indonesia’s currency sank to an all-time low Thursday, losing a quarter of its value in a single day and sending thousands of panicked residents to supermarkets where they snapped up everything in sight.

Ignoring an army appeal for calm in the world’s fourth most-populous nation, Indonesians lined up more than 20-deep at checkout counters to buy sugar, rice, cooking oil and whatever else they could grab before yet another price rise.

The plunge of the rupiah apparently was driven by fears that the International Monetary Fund will yank back a bailout package extended late last year when Asian economies began falling like dominoes. The IMF is losing patience with Indonesia’s failure to implement reform measures that were required for the $40 billion in rescue money.

Financial analysts warned that the rupiah’s dreadful performance, compounded Thursday by a record tumble on the stock market, could leave many companies unable to pay the interest on their foreign-currency debts, thus forcing them into bankruptcy.

While President Suharto has yet to face a credible opposition in his 30-year reign, the prospect of social unrest triggered by inflation and unemployment is looming. The army has pledged to back Suharto in the event of widespread tumult.

For half a year, Indonesia’s 202 million people have remained calm as their currency has continued to slide. They have maintained faith that the 76-year-old president would revive the economy in the same way he built it up years ago.

But their confidence plunged Thursday _ along with the rupiah, which fell 26 percent. The dramatic one-day drop leaves the rupiah down 76 percent since the country’s July currency depreciation.

Thousands of people dashed to stores and picked the shelves clean. ``I only wish I could buy more. Who knows what is going to happen?″ said one woman as she and her family pushed five shopping carts of groceries.

To calm rattled nerves, state-owned television flashed pictures of a national rice stockpile, and quoted officials saying the nation’s food supplies remained plentiful _ despite the need to import rice because of prolonged drought.

The rupiah’s crash left it at a record 10,550 rupiah to the U.S. dollar Thursday, while the Jakarta Stock Exchange index closed down 12 percent. The index rallied after hitting a four-year low in the afternoon _ a record drop of 19 percent.

Spooked by the rupiah’s sharp fall, stock markets across Southeast Asia plunged Thursday. Singapore shares hit a 5 1/2-year low and Philippine stocks reached a 4 1/2-year nadir.

In early trading Friday, the rupiah bounced back on news that Washington-based chiefs from the IMF would visit Indonesia as part of an Asian tour to discuss how to handle the its economic crisis.

Early Friday, the rupiah was quoted at 7,750 to the dollar _ about where it had been just before Thursday’s crash. The Jakarta Stock Market also rallied, and was up 1.3 percent to 351.599 points in early trading.

In Washington, meanwhile, the White House said late Thursday that Deputy Treasury Secretary Lawrence Summers, the administration’s point man on the Asian currency crisis, and a team of State Department and National Security Council officials would leave within the next few days for Indonesia and other Asian countries.

Critical to the resuscitation of Indonesia’s economy is the nearly $40 billion in bailout money from the IMF. The fund, which had demanded sweeping financial reforms including deep spending cuts, was taken aback Tuesday when Suharto announced a new budget that lacks a clear reform agenda. According to the plan, an expensive modernization of the politically powerful military will go forward and spending on social projects is up.

The buying panic, the latest chapter in a financial crisis in Southeast Asia that has hobbled economies from Thailand to Malaysia to South Korea, has turned the focus on Suharto and his future as president.

The former five-star general, who took power after crushing an abortive communist coup in 1965, is Asia’s longest-serving head of state. Backed by the military, he has ruled by tolerating little dissent among his people.

All indications are that he will be elected to a seventh, five-year term in March by a 1,000-member People’s Consultative Assembly.

Until recently, he delivered consistently strong economic growth and stability. The major blemish on his record is the corruption that has steered lucrative government contracts and official monopolies to his six children and close friends.

While Suharto continues to dominate the country’s administration, the current turmoil, combined with his age and speculation that his health is failing, has fueled calls for him to step aside.

Adding to the anxiety, he has failed to name a successor.

Amien Rais, a leader of the country’s second-largest Islamic organization, said in a Jakarta newspaper Wednesday that the government’s mishandling of the financial crisis demanded Suharto’s replacement.

In addition, a group of retired high-ranking military and political figures has called for reforms, and student groups have demanded more democracy.

Anti-government rioting broke out in 1996 and political street fighting marred a parliamentary election in 1997.

With officials predicting the 4.4 million Indonesians now without work could swell to 6.5 million in 1998, analysts say the level of unrest could reach new heights.