Neiss foresees stronger rupiah, lower rates<\/p>\n
SINGAPORE (Dow Jones): Despite recent gains on foreign
\nexchange markets, the Indonesian rupiah still has room to
\nstrengthen and domestic interest rates could fall further, Hubert
\nNeiss, Asia Pacific director for the International Monetary Fund,
\nsaid Wednesday.<\/p>\n
"If things go well, that is most likely to happen," Neiss said
\nof further rupiah strengths, "But probably the rupiah will not
\nappreciate to the same extent that the currencies of the other
\ncrisis countries have appreciated."<\/p>\n
Neiss declined to suggest how much further the rupiah could
\nstrengthen on foreign exchange markets.<\/p>\n
"The less said about the exchange rate, the better," he said,
\nadding that quoting a specific level "would just confuse the
\nmarkets."<\/p>\n
Neiss shrugged off a suggestion from the audience that the
\nrupiah's strength has gone beyond what the market would normally
\ndictate.<\/p>\n
"The appreciation of the rupiah wasn't the result of any
\nmanipulation. It was the result of a return to confidence."<\/p>\n
Neiss said that the priority for Indonesia as it chooses its
\nnext president should be to continue the economic recovery
\nprogram in order to give the next government a firm base to set
\nmidterm policies.<\/p>\n
This could include a further reduction in interest rates and
\ncontinued reforms in the banking and corporate sectors.<\/p>\n
In response to another question from the audience, the IMF
\ndirector said there may be a time for Indonesia to consider
\nfixing its foreign exchange rate, but that time is not now.<\/p>\n
"I would personally do everything possible to persuade the
\nnext government that that measure at this stage is too risky," he
\nsaid. "If you start to fix the exchange rate tomorrow, you may
\nfix it at the wrong level."<\/p>\n
This would lead to either massive intervention, which would
\ndeplete foreign reserves, or a sharp increase in interest rates,
\nwhich could stall the recovery.<\/p>\n
Neiss also said that there shouldn't be any concerns that
\ncurrent foreign exchange rates are hurting Indonesian exporters.<\/p>\n
"All estimates that are being made by Indonesian experts and
\nby ourselves point to the conclusion that exports at this point
\nare not hurt," he said.<\/p>\n
The IMF director - speaking Wednesday at a Singapore seminar
\non the Indonesia's June 7 parliamentary election - said the
\nIndonesian government's monetary, fiscal and foreign exchange
\npolicies must continue to be carefully managed, to coax the
\neconomy back to health.<\/p>\n
"The government must balance growth with stability, moving
\ngradually from an expansionary to neutral stance as recovery
\noccurs," he said, adding that timing is crucial to any revision
\nin fiscal policy. "Too early and it could undermine recovery; too
\nlong and it could trigger inflation."<\/p>\n
Neiss cautioned that Indonesia's political process, which will
\nculminate in the democratic election of a new president this
\nNovember, is also vital for recovery. "Otherwise, market
\nconfidence will falter, undermining a recovery and we will have
\nto start all over again."<\/p>\n
Neiss added that the government must be careful to protect
\nitself against the rising cost of restructuring banks, which,
\naccording to the latest estimates, could be more than 50 percent
\nof gross domestic product.<\/p>\n
"Bank restructuring costs should be offset by loan recovery or
\nthe sale of non-performing loans. In addition, from the point of
\nview of fairness, part of the burden should be placed with the
\nbeneficiaries of the original loans," he said. "Privatization of
\nstate entities should also...eliminate the drain of budgetary
\nlosses in the future."<\/p>\n
As the economy recovers, he said the government should give
\nsome measure of fiscal autonomy to the provinces with the proviso
\nthat tax and revenue-sharing are part and parcel of any deal.<\/p>\n
The government should also push hard to dismantle monopolies,
\ntax holidays and guaranteed credit or trade for certain
\nindustries to encourage a level playing field for small, medium
\nand large businesses. He said this - along with well-implemented
\nlegal reforms - would increase competition and decentralize
\ncompany ownership so that the country would be less vulnerable to
\nfinancial crises in the future.<\/p>",
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