BI will continue to defend ailing rupiah<\/p>\n
JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin pledged
\nhere on Friday to further defend the ailing rupiah, which has
\nbeen under pressure in the past few weeks amid growing conflict
\namong political leaders.<\/p>\n
Sjahril said the central bank would use usual measures
\nincluding intervention into the currency market and raising
\ninterest rates to halt the rupiah's fall.<\/p>\n
\"Bank Indonesia will continue to use the two usual
\nmeasures ... If we think we need to intervene, we'll do so,\"
\nSjahril told reporters at the central bank office.<\/p>\n
Sjahril made the statement amid criticism including from the
\nHouse of Representatives that the market intervention and high
\ninterest rate measures have failed to stabilize the embattled
\nrupiah, which dropped to a 31-month low of Rp 12,300 per U.S.
\ndollar at one point on Thursday.<\/p>\n
The rupiah gained ground on Friday to close at Rp 11,800 per
\ndollar after several state-owned banks sold their dollars to
\ndefend the Indonesian currency.<\/p>\n
\"Don't look at the intervention as a means to eliminate the
\nmain factors causing the rupiah to weaken. The intervention is
\nonly meant to reduce the sharp fluctuation in the currency
\nmarket,\" Sjahril said.<\/p>\n
He explained that the current weakening of the rupiah was
\ncaused by a combination of domestic political uncertainty and
\neconomic problems particularly the uncertainty in the relations
\nbetween the government and the International Monetary Fund (IMF).<\/p>\n
The domestic political conditions have been shaken by the
\nprospect of violence between the opponents and supporters of
\nembattled President Abdurrahman Wahid as the House planned to
\nissue a second memorandum of censure to the President next week,
\nwhich may lead to his impeachment.<\/p>\n
On the economic front, the government failed to reach a new
\nagreement with visiting IMF special mission last week. The latter
\nleft the country after stating a precondition for signing a new
\nagreement that the government must first obtain approval from the
\nHouse over its proposed revision of the current 2001 budget.<\/p>\n
The signing of the agreement would pave the way for the
\ndisbursement of the IMF's next US$400 million loan tranche to the
\ncountry which was delayed late last year.<\/p>\n
\"As long as the rupiah remains under pressure, the interest
\nrate may continue to increase,\" Sjahril said.<\/p>\n
The benchmark interest rate of Bank Indonesia one-month SBI
\npromissory notes has soared to 16.09 percent, a level which
\nanalysts say could spell new trouble to domestic banks. This will
\nalso increase the government's burden in financing the interest
\npayment of the massive bank recapitalization bonds.<\/p>\n
But Sjahril dismissed the concern. \"According to the
\ninformation I received, it (the 16 percent rate) was still a safe
\nlevel... If pressure on the rupiah remained, the interest rate
\nmay still rise, but let's hope it won't,\" he said.<\/p>\n
Sjahril said that it was crucial for the government to reach
\nan agreement with the IMF because it would help revive investors
\nconfidence in the economy and help stabilize the local currency.<\/p>\n
\"The rupiah is currently undervalued, but whether it will
\ncontinue to drop will depend on market confidence. If confidence
\nremains weak, it's impossible to see a stronger rupiah,\" he said.<\/p>\n
\"I think reaching an agreement with the IMF is very crucial to
\nrevive confidence and lift the rupiah,\" he added.<\/p>\n
During a meeting with Finance Minister Prijadi Praptosuhardjo
\nlate on Thursday, House leaders questioned the high interest rate
\npolicy adopted by the central bank to help defend the rupiah.<\/p>\n
Head of the House Commission IX on state budget Benny Pasaribu
\ntold a press conference following the meeting that the high
\ninterest rate policy had been \"too costly\" to the country's
\neconomy and so far had not been effective.<\/p>\n
Benny said that the House demanded the government talk with
\nBank Indonesia to design concrete measures to help strengthen the
\nrupiah as a prerequisite for a speedy approval of the government-
\nproposed revision of the current state budget.<\/p>\n
The government plans to revise the current state budget as the
\nvarious assumptions it is based on are no longer realistic due to
\nthe weakening of the rupiah and soaring interest rates.<\/p>\n
The government plans to start the debating process on the
\nbudget revision with the House early next month and expects to
\nreach a final agreement at the end of the month.<\/p>\n
According to a government document leaked to the press, the
\nnew assumed rupiah-dollar rate in the revised budget is set at Rp
\n9,600 per dollar, while the SBI rate is set at 15 percent. The
\ncurrent budget sets the rupiah-dollar rate at Rp 7,800 per dollar
\nand SBI rate at 11.5 percent. (rei)<\/p>",
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