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Japan is prepared to offer bilateral financial support to help stabilize
the weakening Indonesian rupiah, Prime Minister Ryutaro Hashimoto told
Indonesian President Suharto during a telephone conversation Wednesday.

A senior Finance Ministry official said Hashimoto promised that Japan
would offer loans to the Southeast Asian nation to help buoy market
confidence in the currency, which has been falling against the dollar since
early July. The two governments will soon begin bilateral talks on the
loans, but “Japan’s assistance would be given on the precondition that
Indonesia and the International Monetary Fund agree to an economic
adjustment program,” a precursor to receiving financial aid from the IMF,
the official said.

The official declined to comment on the potential amount of Japan’s aid,
but stressed that Tokyo’s loans would serve as backup funds in the event
that IMF payments were insufficient to support Indonesia’s needs. Singapore
has indicated its willingness to provide $10 billion in loans to Indonesia,
while Australia has also expressed readiness to extend aid once IMF
conditions are agreed to.

While Indonesia’s macroeconomic fundamentals are solid compared with those
of neighboring countries, such as Thailand, markets remain jittery over
various structural problems plaguing the nation, including its weak
financial and banking sectors, Hashimoto was quoted as telling Suharto.

Earlier this month, Indonesia sought IMF assistance to help handle the
current monetary crisis, in which the value of the rupiah diminished after
Jakarta was forced to abandon in August its dollar-rupiah trading band amid
wide-ranging speculative attacks on various Southeast Asian currencies. An
IMF mission is presently in Indonesia to assess the situation and determine
requirements for the IMF aid.

In mid-August, a multinational financial aid package totaling $17.2
billion was put together for Thailand, whose decision in early July to
place its baht under a “managed float” system triggered the currency
turmoil in Southeast Asia. Tokyo put up $4 billion of the Thailand package,
the same amount as the IMF.

But unlike Thailand, which was forced to use up much of its foreign
reserves to battle market forces, Indonesia’s reserves are still relatively
plentiful. However, both the government and Indonesian companies still have
large foreign debt obligations which need to be repaid in dollars, and
Indonesian authorities are seeking to pad the nation’s reserves.

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