BTV: Minister Mentor, let's turn our attention to Southeast Asia. Indonesia is back in the focus given where the rupiah is right now. It plunged to as low as 11,500. It has recovered since. There's problem with fuel subsidies. Are you concerned about developments in the country?
LEE: This is a temporary . . . more a political reaction to what the market sees as a reluctance to face the reality of a changed situation. So they're betting against the rupiah.
I don't see the same situation as in 1997. Then, Indonesia was exposed with $180 billion worth of debts in U.S. dollars. There are no debts. There's about $30 billion of foreign exchange reserves, in U.S. dollars. So this is more a psychological problem of the market, particularly in the forex dealers, and the economic analysts, who say well, if this goes on, the budget is in deep deficit, the rupiah must fall, interest rates will go up to top the rupiah. Sooner or later, the subsidies will have to be cut. The president has come out and said, yes, he is going to tackle the problem of subsidies, probably in October. That's one month's time. But he's going to put something in place to prevent the poorer people who will be affected by the removal or reduction of the subsidies, to cushion the impact on them.
Depending on how much he reduces the subsidies and whether the support he gives to the poorer people in Indonesia makes economic sense, and not another big hole in the budget, I think it will stabilize. It will stabilize even before then, provided it is quite clear the government has got firm plans to deal with this problem of a subsidy which has placed the oil price at an unrealistically low level. It has pumped up to $70. It's a changed situation, and you've got this Hurricane Katrina, and the U.S. is releasing its own strategic petroleum reserve. Nobody can expect the government of Indonesia, or the president of Indonesia, to be able to hold (to) what he promised in his budget. The position has changed and he's going to make a change.
BTV: Would you have made a similar decision as President Susilo Bambang Yudhoyono?
LEE: I cannot put myself in his position because he has other considerations. We have a different philosophy in Singapore. We don't subsidize anything which people consume. Not rice, not flour, not salt, not oil. The market forces people to adjust. Indonesia, since Sukarno days, has had a different philosophy of government. They have tried to protect the lower-waged workers and the farmers from the vagaries of the market, whether it's the price of fertilizers, price of oil, whatever. Even rice at one time was subsidized. So, they have these enormous budget subsidies that they must make provisions for. I don't think the president can change that overnight. If you ask the IMF, the IMF would recommend that, as indeed they have, go to the free market, and people will adjust. And you stop buying rice from abroad, grow more rice at home, or eat tapioca or other things in substitution. So, it's two different philosophies of government.