For the rest of Indonesia, though, the move is financial poison. Pegging the rupiah to the dollar would only work if Indonesia's economy were "comparatively healthy--functioning banks, low inflation, low unemployment, like in the U.S.," says Baumohl. "Indonesia has none of those. It'll be a disaster."
The scenario then is predictable and crushing: Currency traders will take one look at the over-valued rupiah and exchange rupiah for U.S. dollars. "By pegging the rupiah," explains Baumohl, "Indonesia has promised to buy those rupiah with U.S. dollars--at the inflated price." Indonesia's reserves of foreign currency, vital to a nation's economic health, will quickly shrink. And traders, smelling more trouble, will dump even more rupiah, guaranteeing an economic meltdown. "In no time," says Baumohl, "the Indonesian government is bankrupt, and the economy collapses."
The International Monetary Fund has so far been unable to sway Suharto from his plan, which would have dire repercussions throughout Asia. A currency collapse in Indonesia would force devaluations in Malaysia, Singapore and perhaps even China and Hong Kong. With a single selfish action, Suharto could send the entire region back into meltdown.