Ruthless attacks on the currency board idea and the Special Counselor ensued. Suharto was told in no uncertain terms — by both the President of the United States, Bill Clinton, and the Managing Director of the IMF, Michel Camdessus — that he would have to drop the currency board idea or forego $43 billion in foreign assistance.
Economists jumped on the bandwagon, trotting out every imaginable half‐truth and non‐truth against the currency board idea. In my opinion, those oft‐repeated canards were outweighed by the full support for an Indonesian currency board by four Nobel Laureates in Economics: Gary Becker, Milton Friedman, Merton Miller, and Robert Mundell. Also, Sir Alan Walters, Prime Minister Thatcher’s economic guru, a key figure behind the establishment of Hong Kong’s currency board in 1983, and my colleague and close collaborator, endorsed the idea of a currency board for Indonesia.
Why all the fuss over a currency board for Indonesia? Merton Miller understood the great game immediately. As he said when Mrs. Hanke and I were in residence at the Shangri‐La Hotel in Jakarta, the Clinton administration’s objection to the currency board was “not that it wouldn’t work, but that it would, and if it worked, they would be stuck with Suharto.” Much the same argument was articulated by Australia’s former Prime Minister Paul Keating: “The United States Treasury quite deliberately used the economic collapse as a means of bringing about the ouster of Suharto.” Former U.S. Secretary of State Lawrence Eagleburger weighed in with a similar diagnosis: “We were fairly clever in that we supported the IMF as it overthrew (Suharto). Whether that was a wise way to proceed is another question. I’m not saying Mr. Suharto should have stayed, but I kind of wish he had left on terms other than because the IMF pushed him out.” Even Michel Camdessus could not find fault with these assessments. On the occasion of his retirement, he proudly proclaimed: “We created the conditions that obliged President Suharto to leave his job.”
Why did Suharto have to go? President Clinton had his own personal reasons for leading the charge for a regime change. This presented a golden opportunity for the neoconservative regime changers led by Paul Wolfowitz, a former U.S. Ambassador to Indonesia (and subsequently a key figure in the Pentagon — Deputy Secretary of Defense — who pushed for the invasion of Iraq and the overthrow of Saddam Hussein). Their agenda was for the U.S. to control the Greater Middle East, a swath stretching from Indonesia to Morocco.
To depose Suharto, two deceptions were necessary. The first involved forging an IMF public position of open hostility to currency boards. This deception was required to convince Suharto that he was acting heretically, and that, if he continued, it would be costly. The IMF’s hostility required a quick about‐face: Less than a year before the Indonesian uproar, Bulgaria (where I was President Stoyanov’s advisor) had installed a currency board on July 1, 1997 with the enthusiastic endorsement of the IMF. Shortly thereafter, on August 11, 1997, Bosnia and Herzegovina (where I advised the government on the implementation of its currency board) followed suit under a mandate contained in the Dayton Peace Agreement, and with the IMF’s full support.
Shortly after Suharto departed, the IMF’s currency board deception became transparent. On August 28, 1998, Michel Camdessus announced that the IMF would give Russia the green light if it chose to adopt a currency board. This was followed on January 16, 1999 with a little‐known meeting in Camdessus’ office at the IMF headquarters in Washington, D.C. The assembled group included the IMF’s top brass, Brazil’s Finance Minister Pedro Malan, and the central bank’s Director of Monetary Policy Francisco Lopes. It was at that meeting that Camdessus suggested that Brazil adopt a currency board.
The other deception involved the widely‐circulated story that I had proposed to set the rupiah’s exchange rate at an overvalued level so that Suharto and his cronies could loot the central bank’s reserves at a favorable exchange rate. It was intended to “confirm” Suharto’s devious intentions and rally international political support against the currency board idea and for Suharto’s ouster. This story was a linchpin in the Clinton administration’s campaign to dump Suharto.
The overvaluation story was enshrined by the Wall Street Journal on February 10, 1998. The Journal reported that Peter Gontha had summoned me to Jakarta, and that I had prepared a working paper for the government in which I recommend setting the rupiah-U.S. dollar exchange rate at 5,500. This was news to me. I did not know of Peter Gontha nor the rest of this fictive story.
I immediately attempted to have this fabrication — which had been concocted by Jay Solomon, a Dow Jones/Wall Street Journal reporter — corrected. It was a difficult and ultimately unsatisfactory process. Although the Wall Street Journal reluctantly published a correction on February 14, the damage had been done.
Interestingly, Sir Alan Walters warned me that the Wall Street Journal was planning to publish a hatchet job on the idea of an Indonesian currency board and the Special Counselor. As Sir Alan wrote to me: