PROS AND CONS OF AN INDONESIAN CURRENCY BOARD
For the first time in its 53-year history, the International Monetary Fund has become involved in what most observers are calling a "high stakes showdown" against the nation of Indonesia (Passell, 1998, C1). According to Passell's analysis, the showdown has been prompted by Indonesian president Suharto who has "his eye on his family's business and sees a currency board as a sure-fire way to prevent further declines in the nation's currency, the rupiah, and therefore in the family's fortunes" (Passell, 1998, C1). The issues are many, but one clear point of contention stands out. Indonesia wants a currency board, and the IMF has said that if the country does establish a currency board, that it will lose all further support of the IMF bailout funds.
To understand the ramifications of the current Asian financial crisis, a brief background survey is necessary. Indonesia comprises 13,500 islands, and it has been the site of many conquests by many nations. Hindu and Buddhist civilization from India reached the peoples of Indonesia nearly 2,000 years ago, taking root especially in Java. Islam spread along the maritime trade routes in the 15th century, and became predominant by the 16th century. The Dutch replaced the Portuguese as the most important European trade power in the area in the 17th century. They secured territorial control over Java by 1750. The outer islands were not finally subdued until the early 20th century, when the full area of present-day Indonesia was united under one rule for the first time. General Suharto, head of the army, was named president in 1968, reelected 1973, 1978, and 1988, and has become infamous for being an iron-fisted autocrat who successfully blended developing personal fortunes for himself and his family while allowing the nation's fortunes to suffer.
For many years, Indonesia developed a thriving export industry (timber, minerals, raw ...