Asian markets breathe a sigh

THE resignation of President Suharto brought relief throughout Asia's financial markets yesterday, except for Indonesia itself. The appointment of Vice President Habibie, a man much distrusted by investors, as his successor and the dire state of the economy mean Indonesia will remain in financial quarantine, economists said.

The rupiah was little changed from its level of around 11,000 to the dollar. The Jakarta stock market is expected to fall when it opens again today.

Share prices in most of the region's other markets ended higher, however. In Tokyo, the Nikkei index gained 192 points to 15,845.25, while Hong Kong's Hang Seng index rose 121 points to 9,670.45.

Shares in Singapore, Malaysia, Taiwan and Shanghai also made gains. Only in South Korea was there a small setback - the index falling 1.86 per cent after disappointing figures on first quarter growth.

Alan Greenspan, chairman of the US Federal Reserve Board, said there were some encouraging signs in the region. But, in testimony to Congress he said: "Although the tendency in recent months towards stabilisation in the East Asian economies is encouraging, clearly those economies are not out of the woods, as recent events attest."

Indonesia's recovery prospects still looked grim even after Mr Suharto's decision to depart. The International Monetary Fund, the World Bank and the Asian Development Bank have put the country's $40bn rescue package on hold.

The World Bank said yesterday it was ready to resume operations in Indonesia as soon as the capacity to carry through reforms returned.

Foreign investors are even more unlikely than the international institutions to return to Indonesia until it is clear that the government has made a firm commitment to economic reform. Given that the rupiah collapsed to a low of 17,000 to the dollar when President Suharto made Mr Habibie vice-president in January, there is clearly some way to go before the credibility is established.