Indonesia not seeking new funds, says Sjahril<\/p>\n
WASHINGTON (Dow Jones): Indonesia isn't seeking fresh funding
\nfrom the international community even though it faces a
\n\"significant\" blowout in the costs of restructuring its
\ndevastated banking sector, the head of the country's central bank
\nsaid Wednesday.<\/p>\n
In a wide-ranging interview, Bank Indonesia Governor Sjahril
\nSabirin said his meetings with U.S. and International Monetary
\nFund officials during the IMF's spring meetings this past week
\nwere simply \"courtesy calls,\" during which he apprised officials
\nof recent developments in Indonesia.<\/p>\n
The governor said, however, that Indonesia may need to seek
\nmore than the US$43 billion already pledged by international
\nlenders, if it's hit with large-scale capital flight in the lead-
\nup to the potentially violent June general elections.<\/p>\n
One reason for government concern is the mounting cost of a
\nprogram to recapitalize the country's banks.<\/p>\n
Some analysts say the costs could swell to Rp 500 trillion
\n($58 billion), far in excess of the government's official Rp 300
\ntrillion estimate.<\/p>\n
Sjahril acknowledged that the official number, drawn up in
\nDecember, now appears overly optimistic.<\/p>\n
\"We don't have the latest figures as yet, but we have to work
\non the basis of a minimum 4 percent capital adequacy ratio, and,
\nat the present time, we think that the total number will be
\nsignificantly higher,\" he said.<\/p>\n
Sjahril hopes this gap in cost estimates can be filled by the
\nprivate sector, citing the recent sale of an equity stake in Bank
\nBali to UK bank Standard Chartered as a sign of renewed foreign
\ninterest in Indonesian banks. But if private funds prove
\ninsufficient, \"then the government can jump in,\" he said.<\/p>\n
Sjahril doesn't believe the government needs more foreign
\nassistance to finance whatever enlarged role it would play in the
\nrecapitalization process.<\/p>\n
He did, however, offer an important proviso.<\/p>\n
More international assistance isn't needed \"as far as I can
\ntell right now, but the developments in the coming weeks might
\nmake it different,\" he said, referring to the forthcoming
\nelections.<\/p>\n
These will be the first truly multi-party elections in
\nIndonesia for almost four decades. If the public perceives
\nthey've been rigged, many fear a nationwide outbreak of the kind
\nof violence that rocked the capital, Jakarta, in May last year.<\/p>\n
Those riots brought an end to President Soeharto's 30-year
\nrule and was accompanied by a plunge in Indonesia's currency, the
\nrupiah.<\/p>\n
Encouraged by the rupiah's recent relative stability in the
\nface of ongoing ethnic and religious conflict across the
\nIndonesian archipelago, Sjahril is hopeful the currency market
\ncan ride out the elections unscathed. If the rupiah does come
\nunder excessive pressure, however, the central bank would be
\nready to defend it, he said.<\/p>\n
\"We should be prepared to (intervene), although I don't expect
\nthat there will be events that require us to do so,\" Sjahril
\nsaid.<\/p>\n
He said that although the government has set Rp 7,500 as the
\npreferred rate to the dollar, the bank is not actively targeting
\nany level.<\/p>\n
Investor confidence<\/p>\n
Sjahril bases his optimism on some \"promising\" signs of
\nimproved foreign investor confidence.<\/p>\n
In addition to the Bank Bali sale, he cited a recent debt
\nrestructuring deal hammered out between government-owned
\ninvestment bank PT Persero Danareksa and its creditors, and the
\npositive foreign reception given to an Indonesian Supreme Court
\ndecision declaring PT Dharmala Agrifood bankrupt last week.<\/p>\n
Those cases are among the first to conclude among hundreds in
\nwhich creditors are seeking to recover loans that were
\neffectively frozen during last year's financial crisis.<\/p>\n
Sjahril said he believes the latest developments are a sign
\nthat Indonesia is about to share in some of the inflows of
\ncapital currently seen in other crisis-hit Asian markets.<\/p>\n
\"Some investors have been waiting for the results of the
\ngeneral elections, but some of them are seeing that this is the
\nright moment to come in,\" he said.<\/p>\n
All the same, Indonesia isn't yet ready to follow the current
\nrush to international debt markets by other developing nations,
\nalthough the government would consider issuing Eurobonds if the
\nelections pass smoothly and if sufficient confidence returns to
\nIndonesia's money markets.<\/p>\n
The governor argued that steps taken under the IMF's guidance
\nto improve transparency and economic planning will boost
\nIndonesia's standing among foreign investors.<\/p>\n
Among these, he cited a recently passed foreign exchange
\nmonitoring law and another law intended to guarantee Bank
\nIndonesia's independence from the executive branch of government.<\/p>\n
Sjahril stressed that the monitoring law would be used solely
\nfor economic planning purposes and not to facilitate tighter
\ncontrols over currency movements. Its aim is to help the central
\nbank more accurately calculate monetary indicators by which it
\nsets interest rate policy, he said.<\/p>\n
As to the central bank's independence legislation, which has
\nbeen passed by the Indonesian parliament, Sjahril expects
\nPresident B.J. Habibie to sign it into law in a \"week or two.\"<\/p>\n
The new law would separate Bank Indonesia's budget from
\ngovernmental control and set four-year terms for a governor to be
\nappointed by a new governing board of central bank directors. It
\nallows for an interim transition period under which the current
\ngovernor is automatically appointed for the first term.<\/p>\n
Sjahril said he will take on this newly independent position,
\n\"unless President Habibie dismisses me before he signs\" the bill.<\/p>",
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