Indonesia warned against any backsliding

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The US yesterday insisted the Indonesian government must implement its reform programme as the country's regime stepped up its brinkmanship with the West and with the International Monetary Fund.

Robert Rubin, US Treasury Secretary, said Indonesia must adhere to the terms of its IMF reform programme to restore confidence in the economy. "The key is always with Indonesia ... that there be sustained implementation of the reform programme. That is the path for dealing with the problems in the economy and recovering confidence," Mr Rubin said. The rest of the world might not think much of Indonesia's plan to create a currency board to stabilise its currency but rumours that the plan was to be implemented saved the rupiah from one its worst one-day falls, which at one point took its value down by more than 15 per cent.

By the time trading closed the rupiah had recovered most of the ground lost during the day, producing a fall of less than 1 per cent. Local investors see the creation of a currency board and the pegging of the rupiah to the US dollar as the only way to stop the freefall which has caused the local currency to lose almost 76 per cent of its value since last July.

Although local investors like the idea of a currency board, it is opposed by the IMF, which is presiding over a $43bn (pounds 26bn) bail-out. Yesterday there were fresh rumours that the IMF would delay release of the second $3bn tranche of the bail-out because of dissatisfaction with the government's implementation of IMF-imposed reforms.

Finance Minister Mar'ie Muhammad said he remained optimistic the payment would be forthcoming, insisting any differences in interpretation of the reform programme would be resolved soon.

His optimism contrasted with that of most other sources. The Americans, for example, are reported to be dissatisfied with the outcome of a mission headed by Walter Mondale which had sought to persuade Indonesia of the need to implement the programme and ditch the currency-board plan. A US official was quoted as saying results of the mission were "certainly less than we had hoped for" and Mr Rubin said only that the discussions were a "useful process''. Britain has also been pushing Indonesia to follow the IMF prescriptions.

Derek Fatchett, junior Foreign Office minister, met President Suharto on Wednesday, carrying the same message as Mr Mondale and appeared to have received the same non-committal response.