Government to maintain current monetary policy<\/p>\n
JAKARTA (JP): The government affirmed on Friday it would
\ncontinue its high interest rate policy with the aim to ensure the
\nquick reduction of inflation and the strengthening of the rupiah.<\/p>\n
\"We intend to continue to implement a firm monetary policy,
\nconsistent with the monetary targets already established as part
\nof our program,\" the government stated in the new Supplementary
\nMemorandum of Economic and Financial Policies (MEFP) agreed with
\nthe International Monetary Fund on Friday.<\/p>\n
It was attached to the Letter of Intent on the IMF-sponsored
\nprogram, which was addressed to IMF Managing Director Michel
\nCamdessus in Washington, D.C., by Coordinating Minister for
\nEconomy, Industry and Finance Ginandjar Kartasasmita on the
\ngovernment's behalf.<\/p>\n
The document added that interest rates were expected to
\ndecline gradually as inflation subsided and the rupiah \"remains
\nin line with the program path\".<\/p>\n
Completion of the monthly review program this week paved the
\nway for the disbursement of another US$1 billion of the IMF's $11
\nbillion contribution to Indonesia's bailout program, of which
\nabout $5.9 billion has been disbursed.<\/p>\n
The IMF-lead economic program targets the rupiah reaching Rp
\n10,000 to the U.S. dollar by the end of this year, with an
\naccompanying inflation rate of about 80 percent.<\/p>\n
Stability of the exchange rate is the cornerstone of the
\neconomic reform program.<\/p>\n
The rupiah has lost about 80 percent of its value since it
\nstarted its free fall in July last year.<\/p>\n
The IMF has championed the high interest rate regimen to
\nstrengthen the currency and curb soaring inflation.<\/p>\n
The business community and bankers have appealed to the
\ngovernment to loosen the tight monetary policy because it has
\nfailed in both of the declared aims. Dire ramifications for the
\nreal sector have included lending rates soaring to more than 70
\npercent and the banking sector threatened by a negative spread.<\/p>\n
\"Monetary policy has been in line with the program, and the
\nfiscal balance is well within the program limit,\" the MEFP said.<\/p>\n
The rupiah rallied to between 10,000 and 10,500 to the dollar
\nin recent weeks, up from about 13,000 in August.<\/p>\n
But the currency plunged to hover around the 12,000 level this
\nweek due to anxiety over major demonstrations and rioting in
\nseveral parts of the country in the wake of sharp increases in
\nprices of food staples, especially rice.<\/p>\n
The government avowed on Friday it would proceed quickly with
\nits bank restructuring program to drum up further confidence in
\nthe beleaguered currency.<\/p>\n
\"We intend to proceed quickly with the issuance of government
\nbonds needed to finance bank restructuring operations,\" the MEFP
\nsaid.<\/p>\n
The troubled banking sector is enduring painful rehabilitation
\nmeasures, bound to be extremely costly especially due to the non-
\nperforming loans (NPLs) estimated to reach 50 percent of the more
\nthan Rp 600 trillion in outstanding bank credits.<\/p>\n
They will be absorbed by the state-sponsored asset management
\nunit (AMU) of the Indonesian Bank Restructuring Agency, which
\nwill purchase them from the banks through the issuance of
\ngovernment bonds.<\/p>\n
The MEFP stated that a final plan for the restructuring and
\nrecapitalization of Bank Danamon, Bank BCA, Bank Tiara and Bank
\nPDFCI -- all of which were nationalized on Aug. 21 -- would be
\nprepared by Sept. 30, 1998.<\/p>\n
\"We intend by Sept. 21 to complete negotiations with the
\nformer owners of large banks for the repayment of Bank Indonesia
\nliquidity support.\"<\/p>\n
The government also suspended the operations of three banks
\nlast month. The owners have promised to repay liquidity credit
\nreceived from the central bank with a combination of cash and
\nassets by the Sept. 21 deadline.<\/p>\n
The government promised that its fiscal policy would be
\nsupportive of efforts in curb inflation and stabilize the
\ncurrency.<\/p>\n
\"We are taking steps to ensure that fiscal policy is as
\nsupportive of recovery as programmed.\"<\/p>\n
It set the target of net domestic assets (NDA) -- the
\ndifference between reserve money and net international assets --
\nfor October, November and December at minus Rp 61.7 trillion,
\nminus Rp 56.2 trillion, and minus Rp 50.9 trillion.<\/p>\n
Base money for the months was targeted at Rp 71.5 trillion, Rp
\n73 trillion and Rp 74.3 trillion respectively and BI liquidity
\nsupport at Rp 173.6 trillion, Rp 174.1 trillion and Rp 174.6
\ntrillion.<\/p>\n
Net reserves are targeted at $13.3 billion, $12.9 billion, and
\n$12.5 billion for the corresponding months. (rei)<\/p>",
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