The International Monetary Fund announced a $23-billion economic rescue package for Indonesia on Friday, the second-largest such bailout in history, as authorities scrambled to contain a currency crisis that has rattled financial markets from Tokyo to New York.
The United States said it would provide backup assistance, a reversal for the Clinton administration, which had refused to participate directly in a $17.5-billion bailout for Thailand two months ago because of controversy generated by the 1995 U.S. bailout of Mexico.
Both the administration and Federal Reserve Chairman Alan Greenspan were increasingly worried in recent days that the continuing economic turmoil in Southeast Asia was threatening to destabilize financial markets worldwide.
A severe plunge of the Hong Kong stock market last week was the triggering event for Monday's record 554-point stock loss on Wall Street, dramatically underscoring how interconnected the world economy has become.
The IMF package of $23-billion for Indonesia, which has the world's fourth-largest population, will be backed up by $3-billion in U.S. loans plus additional assistance from Japan, China, Singapore, Malaysia, Hong Kong and Australia.
Treasury Secretary Robert Rubin, in announcing the administration's decision, emphasized that direct U.S. loans would serve only as a second line of defense should the initial $23-billion fail to stabilize the economic situation in Indonesia. But he insisted that American businesses and workers have a lot at stake.
"Financial stability around the world is critical to the national security and economic interests of the United States," Rubin said. "In today's global economy, the health and prosperity of the American economy depend importantly on the stability of the global financial system and the economic health of our trading partners."
The package of initial and backup support was expected to total more than $35-billion, making it the second-largest rescue package in IMF history after the $50-billion made available for Mexico.
The administration took the lead in putting together the Mexican assistance package, and some European nations went along reluctantly. When Congress balked, President Clinton exercised his authority to use the Exchange Stabilization Fund, created in the 1930s to support the dollar.
U.S. support for Mexico ultimately totaled $12-billion in loans, which Mexico finished paying back earlier this year.
In exchange for the economic support, Indonesia agreed to a series of economic reforms, including shutting unhealthy banks, reducing food subsidies, removing trade barriers and ending inefficient state monopolies.
Indonesian President Suharto, 76, who has governed the country for 32 years, has tolerated little political dissent, but until earlier this year, when speculators pounded the Indonesian currency, he had been able to deliver sustained economic development.
Critics complain that the Indonesian economy is dominated by family members and close associates, who run state monopolies and other inefficient industries.
Indonesia becomes the third Asian nation this year to seek IMF assistance because of currency turmoil. In July, the IMF approved a $1-billion loan for the Philippines and in August put together a $17.5-billion package for Thailand.