Visitors to this year's Asian Development Bank meeting in Geneva were less than impressed by the presentation given by the Indonesian contingent. While slick and technical, the central bank's plans did not address the critical issues still facing the country and by extension the region. As Asian finance ministers admitted in private, the real economy has ground to a halt. Trade finance has dried up and foreign banks will not accept letters of credit or guarantees from Indonesian banks for imports. In the absence of a multilateral system to overcome this problem, the band-aid of bilaterals is now being used. It is not enough.
The government has emphasized private-sector debt but this is a sovereign problem, something the Suharto regime seems unable to admit. Its latest actions have certainly not been reassuring. The republic is reported to be drawing down standby facilities set up in the past five years at margins of between 62.5 basis points and 87.50bp over Libor. Bankers are checking every public bond default by an Indonesian entity - and there are more coming - to try to invoke the cross-default clauses in the loans, so far without result.
Meanwhile the central bank has an exchange-rate target of under Rp6,000 and will keep interest rates high regardless of the pain it causes.