Word: rupiah
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...secret that come Millennium Eve, computers everywhere may be crashing faster than the Indonesian rupiah. Last week U.S. officials admitted that they've fixed only 35% of the most vital federal mainframes and won't have time before Dec. 31, 1999, to prevent all the 5,100 remaining machines from deciding it's 1900, not 2000. "Financial transactions could be delayed, airline flights grounded and national defense affected," warns the General Accounting Office's Gene Dodaro. Not to mention anyone caught in an elevator...
...second year of living dangerously for Indonesian President Suharto. During the first, in 1965, he coolly rode out a coup, followed by massacres that killed 500,000 people, and emerged as the country's leader. In this one, economic ruin threatens to topple him. Yet as the rupiah plunges into worthlessness, the nation's debts go unpaid, the International Monetary Fund suspends emergency aid, and students riot in universities, he blithely has himself reappointed to his seventh five-year term as President...
...international body had been alarmed at Suharto's plan to peg the rupiah to the dollar, which would force up interest rates and bring even greater economic hardship to a nation already in the grip of mounting social turmoil. President Clinton on Friday called Suharto -- for the second time this month -- to urge him to comply with IMF requirements for the $43 billion bailout of Indonesia. "Suharto is sitting on a political volcano," says Van Voorst, "which is why it's not easy for the IMF to simply pull the plug on its promised bailout. The collapse of Indonesia...
...rest of Indonesia, though, the move is financial poison. Pegging the rupiah to the dollar would only work if Indonesia's economy were "comparatively healthy--functioning banks, low inflation, low unemployment, like in the U.S.," says Baumohl. "Indonesia has none of those. It'll be a disaster...
...scenario then is predictable and crushing: Currency traders will take one look at the over-valued rupiah and exchange rupiah for U.S. dollars. "By pegging the rupiah," explains Baumohl, "Indonesia has promised to buy those rupiah with U.S. dollars--at the inflated price." Indonesia's reserves of foreign currency, vital to a nation's economic health, will quickly shrink. And traders, smelling more trouble, will dump even more rupiah, guaranteeing an economic meltdown. "In no time," says Baumohl, "the Indonesian government is bankrupt, and the economy collapses...