(Kuala Lumpur, Sunday): The international mass media are now full of reports about new forest fires in Indonesia, recalling the regional haze disaster affecting Indonesia, Malaysia, Singapore, Thailand and Philippines, which would have a most adverse impact on the efforts of the regional economies to depend on tourism as a major plank for economic recovery from the economic turmoils of the past eight months.
The international television networks today for instance reminded all would-be tourists of the life-threatening, health and environmental hazards caused by the recent haze disaster, described as the worst global environmental catastrophe, including deaths through aircrashes and sea collisions.
The resurfacing of forest fires, stoked by drought caused by El Nino, in Sumatra and Kalimantan earlier this month should a grim warning that the region might be facing another environmental disaster, especially as Indonesia might not be able to tackle the fires due to its economic problems.
The Indonesian authorities must be made to understand that it has a responsibility not only to their own people, but to the neighbouring countries, to ensure that it does not allow the region to be subjected to another environmental crisis.
The same applies to the economic crisis as well. Whether the Malaysian ringgit and the Kuala Lumpur bourse do well tomorrow and in the coming weeks will depend to a considerable extent on developments in Indonesia, where a new economic crisis is shaping up which could undermine not only the Indonesian economy but also neighbouring economies.
The International Monetary Fund managing director Michel Camdessus has written to President Suharto warning that the IMF's US$43 billion rescue package for Indonesia could be jeopardised if Jakarta adopts a controversial currency board system which would peg the rupiah to the US dollar.
The Washington Post yesterday quoted Camdessus as saying in his letter: "In the current circumstances ... if a currency board proposal were adopted we would not be able to recommend to the IMF board the continuation of the present program, because of the risks to the Indonesian economy."
The currency board is reported to be supported by Suharto’s family and his wealthy business associates, as a high rupiah would help them pay off their astronomical offshore debts.
The IMF, World Bank, the Asian Development Bank, the United States and Japanese governments as well as bankers and economists however believe that a currency board system should not be introduced until the country’s banking sector has been reformed and negotiations on rescheduling more than US$80 billion in corporate offshore debts have brought results. They fear that until these issues are addressed, a currency board will force up interest rates, damage banks’ balance sheets and encourage capital flight.
It is of course the Indonesian Government which must make the final decision on the controversial issue of a currency board for Indonesia, but the Indonesian government should realise that in the globalised world of today, no nation is an island, and it should be fully conscious of the adverse effects of its decisions and actions on neighbouring economies.
Malaysia has pledged US$1 billion in the US$43 billion international financial bail-out of Indonesia which we cannot really afford. However, this US$1 billion commitment to the help of Indonesia should give Malaysia the right to convey its views to the Indonesian government and I call on the Prime Minister, Datuk Seri Dr. Mahathir Mohamad to convey to President Suharto Malaysia’s concerns about economic developments in Indonesia which could adversely affect the Malaysian economy, particularly the money and stock markets.
(15/2/98)