The moves dealt another blow to Indonesia's battered credibility with investors, sending the rupiah tumbling as much as 20 per cent to the dollar, and pushing the benchmark stock index down 3.2 per cent.
Yesterday, on the eve of President Suharto's re-election, his administration indicated that it was ready to go it alone if the IMF insisted on unacceptable reforms.
At a meeting with political leaders President Suharto said: "The IMF package will impose a liberal economy, which is not in line with the constitution."
It was left to one of his ministers, Ginandjar Kartasamita, who is responsible for national development planning, to up the stakes further. He said yesterday: "We welcome international bodies such as the IMF and the World Bank to help Indonesia. But if that means they can impose their will or humiliate us, we would be better off without their aid."
Although this tough talking may well appeal to the nationalistic sentiments of the hand-picked National Assembly members, it did not impress the investment community which promptly sparked yet another run on the local currency.
The slump triggered falls elsewhere in Asia: stocks fell in Singapore, Malaysia, South Korea and the Philippines in the wake of a 20 per cent decline in the value of the rupiah.
Hong Kong, Thailand and Malaysia also felt the Indonesian tremor but recovered by the end of trading.
Among the most contentious issues between the IMF and the Indonesian government is President Suharto's enthusiasm for a currency board to tie the Indonesia rupiah to the US dollar at a fixed rate.
Bambang Trihatmodjo, one of the President's sons, said that his father intended to announce the establishment of a currency board after his swearing- in tomorrow.
Not only the IMF but all countries which are contributing to the bailout oppose the creation of a currency board.
The head of foreign exchange trading at a European bank in Singapore said that a board system would last no more than a few weeks at the most and then the currency would spiral into freefall.
"If that happens it would be catastrophic," he said. "There's been some wild talk about hoards of boat people invading Malaysia and Singapore if Indonesia collapses, but now it doesn't seem so wild."
At the end of last week the IMF announced a delay in the disbursement of the second tranche of the $43bn bailout. Although IMF officials tried to play down the delay, it clearly demonstrates that an impasse has been reached over implementation of the IMF reform package.
Spokesmen for the IMF kept a low profile, hoping that the government in Jakarta can be pulled back from the brink without a confrontation. However, hopes of this happening are dwindling. In New York yesterday, Lawrence Summers, US Deputy Treasury Secretary, declined to comment on the latest developments in the unfolding financial crisis.
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