The IMF and the international community do not want to risk social turmoil and political uncertainty in Indonesia by demanding overly stringent reforms. And President Suharto knows Indonesia cannot dig its way out of its economic hole without the financial credibility the IMF can give. Economist Steve Hanke, whose plan to peg the rupiah to the dollar got the IMF's dander up, says he thinks Suharto still favors the idea. Jakarta's proposal, which the IMF agrees has merit, is modeled on a program adopted by Mexico in the 1980s to get over its debt crisis. Under the plan, an indebted company pays its obligations in rupiah into a state fund, which then pays the company's creditors in foreign currency.
Payments go toward interest in the first few years and capital later.
But setting up the mechanism is not easy. Finding the money will be tough. Despite the uncertainty still surrounding the debt plan, news of progress in the IMF-Indonesia relationship refreshed the rupiah, which rose above 9,000 to the dollar for the first time since January. A deal may now emerge in days. IMF Asia-Pacific Director Hubert Neiss, leading the Fund's team in Jakarta, said the committee on monetary policy has reached a reasonable conclusion.