Downer seeks flexibility in IMF deal

Preparing for his urgent visit to Washington to discuss the Indonesian economic crisis, Australia's Foreign Minister, Mr Downer, warned yesterday that Indonesia's social cohesion was at risk unless the International Monetary Fund allowed greater flexibility in the implementation of its rescue package.

Mr Downer, who leaves today along with senior Foreign Affairs and Treasury officials, spoke of "a very volatile social environment" caused by rapid increases in food prices and widespread unemployment caused by the currency collapse.

The Foreign Minister's main task may not be persuading the IMF and the United States to soften their approach, but talking with several other countries represented on the IMF board, which must approve any change in the terms of the $US43 billion ($64 billion) bail-out.

"Australia and the US are at one end of the spectrum, wanting to keep the fund in there," said one senior government source in Canberra. "Others are further away, such as the Europeans who are less sympathetic.

"Others whose fund programs were successful, like Argentina, Brazil and some Eastern European countries, say "we know what it is like: it's tough, but we won't support a softer approach'".

As far as Australia and the US are concerned, there is little substantive difference on how to handle the Indonesian problem. Comments from Canberra about the need for flexibility and sensitivity echo similar sentiments by the Clinton Administration and the IMF.

The IMF also repeats at every opportunity that it is prepared to be flexible, particularly on sensitive issues like food and fuel subsidies.

The Clinton Administration is not attempting to foment a revolution aimed at President Soeharto's overthrow for the very reason the Australian Government fears such an outcome.

There is no obvious better successor to President Soeharto and there are fears that the potential for bloodshed and disintegration or military rule could well be much worse an outcome.

Mr Downer was guarded yesterday in his comments on the newly sworn-in Soeharto Cabinet, saying it faced a difficult task. "It has the task of implementing reform and it needs to generate international confidence in its commitment to economic reform," he said.

Yesterday, Mr Downer also released details of Australia's extra $4 million in food aid to drought-stricken regions in Indonesia.

The package includes work-for-food swaps delivered through non-government aid organisations to communities across the archipelago where the maize harvest, the staple crop in the eastern islands, is down 30 per cent and national rice production has fallen 10 per cent.

UNICEF, World Vision, CARE Australia, the Christian Children's Fund, and Plan International Australia have all received a share to deliver medical supplies and food, including a cereal supplement for 90,000 starving infants.