Economic gains 'fail to boost rupiah'<\/p>\n
JAKARTA (JP): The country's encouraging economic developments
\nhave failed to strengthen the rupiah because the financial market
\nhas yet to perceive the gains, according to Deutsche Bank AG Asia
\nchairman Hubert Neiss.<\/p>\n
\"The economic recovery is growing, but why is the rupiah still
\nweak? This is because there's a difference between reality and
\nperception. The perception of the people and the market is that
\nthe economy is much worst than it actually is,\" he told The
\nJakarta Post on the sidelines of a conference on
\ntelecommunications and information technology.<\/p>\n
\"What is necessary is to change the perception and raise
\nconfidence. Then the rupiah will turn around,\" added Neiss, who
\nis the former IMF Asia Pacific director.<\/p>\n
Neiss helped design Indonesia's economic reform program in
\nlate 1997 following the outbreak of the economic crisis. He left
\nthe IMF earlier this year.<\/p>\n
The rupiah has depreciated by more than 18 percent since the
\nstart of the year, ending trading on Friday at around Rp 8,765 to
\nthe U.S. dollar.<\/p>\n
The exchange rate is much lower than the government's target
\nfor 2000 of Rp 7,000 against the dollar.<\/p>\n
A stronger and stable rupiah is seen as a cornerstone for the
\ncountry's sustained economic recovery.<\/p>\n
Neiss said that in order to change the market's perception and
\nrevive confidence in the economy, \"the government must project
\nthe image of being fully in charge and progressing consistently
\nand vigorously on the program that it has set up and (that has
\nbeen) accepted by the IMF\".<\/p>\n
\"Just implement the program. Don't miss deadlines again. This
\nis important for confidence,\" he said.<\/p>\n
The government was roundly criticized for failing to meet a
\nMarch deadline for the implementation of a host of key economic
\nprograms, prompting the IMF to delay a second disbursement of its
\nloan to Indonesia from the initial schedule of April to May.<\/p>\n
The failure to meet the deadline and the delay in the IMF loan
\ndisbursement badly affected the rupiah.<\/p>\n
The IMF agreed with the administration of President
\nAbdurrahman Wahid in January to provide a new US$5 billion
\nbailout package to finance the country's three-year economic
\nreform program. The fund has so far disbursed more than $700
\nmillion of this package.<\/p>\n
Coordinating Minister for the Economy, Finance and Industry
\nKwik Kian Gie said last week the government was on track to meet
\na July 5 deadline for the implementation of a host of reforms.
\nThis would allow the government and the IMF to sign a new letter
\nof intent (LoI) in the middle of this month, paving the way for
\nthe disbursement of another $380 million of the IMF loan early
\nnext month.<\/p>\n
An LoI is basically a set of economic reform programs to be
\nimplemented by the government within a certain time frame.<\/p>\n
Neiss said Indonesia's economy had been showing positive
\nprogress, as evidenced by growth in gross domestic product (GDP),
\neasing unemployment, strong exports and balance of payment, and
\nlow inflation.<\/p>\n
\"The Indonesian economy is recovering very well,\" he said.<\/p>\n
The Central Bureau of Statistics (BPS) reported on Friday
\nencouraging economic data that seemed to support this statement.<\/p>\n
The BPS said inflation increased 0.5 percent in June, down
\nfrom an 0.8 percent increase in May.<\/p>\n
Many analysts said the government's 5 percent to 7 percent
\ninflation target for the year was within reach, although the
\ngovernment is scheduled to raise fuel prices in October.<\/p>\n
BPS reported a 2.94 percent decline in total exports in May to
\n$4.8 billion, from $4.9 billion in April.<\/p>\n
However, BPS said total exports from January to May reached
\n$23.9 billion, or around 32.3 percent higher than the $18.09
\nbillion in total exports over the same period last year.<\/p>\n
Imports, on the other hand, rose 1.15 percent in May to $2.35
\nbillion, from $2.33 billion in April. Indonesia's export sector,
\nas well as the country's overall production system, still depends
\non imported raw materials.<\/p>\n
\"Our industries are already too dependent on imported raw
\nmaterials, so an increase only shows that production is
\nimproving,\" said BPS deputy chief Kusmadi Saleh.<\/p>\n
The government has said it is convinced the 4 percent GDP
\ngrowth target for the year can be achieved.<\/p>\n
Asked about recent increases in the benchmark interest rate of
\nBank Indonesia's one-month SBI promissory note, Neiss said the
\ncurrent level of the interest rate was not yet a threat to the
\noverall economy.<\/p>\n
He said increases in the benchmark rate was a response to the
\nweakening of the rupiah. \"But I would not expect Bank Indonesia
\nwould push interest rates to levels that would be adverse to the
\neconomic recovery, because recovery is a high priority.\"<\/p>\n
The benchmark interest rate has climbed for eight consecutive
\nweeks to 12.33 percent on Wednesday, its highest level since
\nearly this year.<\/p>\n
Bank Indonesia has said the rate increase was only temporary
\nand expects it to decline to below 12 percent by the end of this
\nyear, assuming domestic social and political uncertainties
\nsubside.<\/p>\n
Neiss also called on the Indonesian Bank Restructuring Agency
\nto accelerate the disposal of the assets under its controls, to
\nhelp restore investor confidence in the economy.<\/p>\n
He also said the government must press ahead with the
\nrestructuring of corporate loans. \"The government must also
\nimmediately complete the reorganization of state banks,\" he
\nadded. (rei)<\/p>",
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