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Wednesday, January 7, 1998 Published at 16:02 GMT

Business

Markets give thumbs-down to Indonesian budget
image: [ President Suharto delivers the budget address ]

President Suharto delivers the budget address

For the third day running the Indonesian currency, the rupiah, has fallen to a new record low against the US dollar after a 15% drop in Wednesday's trading.

The fall comes a day after Indonesian President Suharto presented a budget intended to steer the economy out of its current crisis.

Budget expectations about the country's economic prospects are "unrealistic", say economists. One described it as a "denial" budget which failed to recognise the depth of the country's economic problems.

Over-optimistic

The budget is based on expectations of an exchange rate that would require to the rupiah to rise to more than twice its current value against the US dollar.

The forecast for tax revenue also assumes economic growth of 4%, when most economists believe that a contraction of the economy is more likely than growth.

Now the government could find itself in trouble with the International Monetary Fund. The IMF is demanding Indonesia produces a financial surplus as part of its economic rescue package. A budget deficit now seems much more likely.

President Suharto has also been accused of allowing members of his family to reopen an insolvent bank in contravention of its agreement with the IMF which wants bankrupt businesses to be closed.

Other currencies suffer

Even the Singapore dollar and the Taiwan dollar have been hit. Both economies are regarded as sound but such is the ferocity of the Asian financial storm that they too are coming under pressure.

Even Singapore, which does not have the same deep-seated economic problems as its neighbours, saw its currency fall to its lowest level against the dollar since 1991.

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