By Paul Blustein
Washington Post Staff Writer
Friday, January 9, 1998; Page A01

The Clinton administration and the International Monetary Fund last night launched an emergency initiative to pull Indonesia back from the brink of economic disaster and stem Asia's deepening financial crisis.

The IMF announced that its top two officials will travel to Jakarta shortly in an effort to negotiate a "strengthening and acceleration" of Indonesia's $43 billion international bailout -- in effect, rescuing the rescue, as was done for South Korea two weeks ago.

Later, after a fund-raising dinner in New York, President Clinton called Indonesia's President Suharto, the White House announced. The call, which was made from Air Force One and lasted about 20 minutes, was carefully staged to deliver a double-edged message -- that Washington stands ready to support Indonesia at a time of crisis, but only if the Suharto regime stops balking at fulfilling promises to restructure the Indonesian economy.

"The president underscored the importance of Indonesia to the region and to the United States," an administration official told reporters late last night. "And the president made it quite clear that the IMF program needs to be followed." Clinton is sending Deputy Secretary Lawrence H. Summers to Indonesia this weekend, the official added, and Summers will also visit other countries in the region.

The moves came amid mounting fears that Indonesia, the world's fourth most populous country, was headed toward political and social chaos because of a free fall in its currency, the rupiah, that threatened to bankrupt hundreds of Indonesian companies and send the once-thriving economy into a prolonged recession. [See story, Page A26].

Also fueling Washington's sense of urgency was the fact that Indonesia's troubles are threatening to drag down its neighbors' economies. The administration has argued for months that the United States has a major stake in easing the crisis in Asia, in part because economic weakness in the region damages a lucrative market for U.S. exports, and in part because of fears that an economic downturn would spark social unrest and bloody conflict in countries of strategic importance.

The rupiah, which traded at 2,500 per dollar as recently as August, plunged below the 10,000-rupiah-per-dollar level at one point yesterday, and Indonesian stocks fell nearly 12 percent. The turmoil in Indonesia has been widely blamed for driving down currencies and stock markets from Thailand to Hong Kong. But as news spread this morning of the IMF-U.S. initiative, the rupiah soared to around 8,000 per dollar.

The missions by the IMF and Treasury officials are aimed chiefly at convincing Suharto that his country's future -- and his 32-year legacy as Indonesia's ruler -- depend on embracing a series of measures mandated by the IMF to overhaul the nation's ailing banking system and reduce the cronyism and corruption that have marred Indonesia's remarkable economic development during Suharto's tenure.

Suharto's reluctance in recent weeks to take those steps has deepened investor pessimism that the country was getting a grip on its underlying problems, and both IMF and administration officials have blamed the Suharto regime for the failure of Indonesia's rescue package to restore financial stability. Earlier this week, they issued veiled threats that the IMF, which disbursed $3 billion in loans to Indonesia when the rescue was announced Nov. 5, would refuse to provide the next installment due in mid-March unless Jakarta implemented the fund-mandated reforms.

But yesterday, amid reports from Indonesia that the crisis was spawning panic buying in supermarkets, officials in Washington decided to take their case in a direct and public way to Suharto. Stanley Fischer, the IMF deputy director, is traveling to Jakarta on Sunday, and he will be followed by IMF Managing Director Michel Camdessus late next week.

"We'd like to accelerate the program and strengthen it," Fischer said on CNN after a long meeting of the IMF board. Those words are almost exactly the same as the ones used on Christmas Eve when the IMF, the United States and other rich countries agreed with South Korea on steps aimed at salvaging Seoul's $57 billion bailout. In that move, Seoul -- which was lurching toward default on its foreign debt -- received emergency loans ahead of schedule in exchange for promises to speed up efforts to restructure its economy.

Persuading Suharto to embrace the IMF program will be difficult, however, because many of the measures required by the fund affect the personal interests of his children, relatives and powerful Indonesian business executives who backed his rise to power. The IMF has argued that despite Indonesia's enviable record in developing its industry, the nation's progress is threatened by a banking system loaded with bad loans to ambitious enterprises and infrastructure projects owned and run by Suharto cronies and family members.

After initially impressing the markets and the IMF in November by ordering the closure of 16 ailing banks -- including three controlled by Suharto relatives -- the government has drifted back to what many analysts in Jakarta view as cronyism as usual. One of the shuttered banks, controlled by a son of Suharto, was essentially reopened under a different guise. And the government approved the development of power plants on Java controlled by two Suharto daughters despite concerns among foreign economists that the island was already oversupplied with electricity.

Fischer made it clear last night that the IMF will be looking primarily for Jakarta to show its willingness to clean up the banking system and take on powerful interests. He said that the fund is not particularly concerned about the budget announced Tuesday by Suharto, even though market analysts criticized it for breaching IMF spending targets.

Indeed, Fischer held out the possibility that the IMF would be willing to relax the budget targets if Suharto cuts spending on items such as his daughters' power plants. Rather than simply cutting spending, he said, the goal is "cutting spending on projects that make no economic sense of any sort."

Another senior IMF official, Jack Boorman, said in an interview that the fund doesn't believe that Indonesia needs emergency loans as Korea did. "Indonesia has [foreign currency] reserves in excess of $20 billion," Boorman said, which he said is ample. But he said that if extra or faster financing "is needed as a component, we would be open to that. But in the first instance, the critical thing is to see what they can do to accelerate reforms they have committed themselves to."