Rupiah will get stronger: Sjahril<\/p>\n
SINGAPORE (Dow Jones): Bank Indonesia Governor Sjahril Sabirin
\nsaid Wednesday policies prescribed by the International Monetary
\nFund for Indonesia are working.<\/p>\n
Addressing a conference sponsored by the World Economic Forum
\nhere, Sjahril also said the delay in his country's recovery from
\nthe crisis rocking its economy is the result of non-economic
\nfactors.<\/p>\n
He said the he is "confident" the rupiah will continue to
\nimprove. Wednesday, the dollar dropped below Rp 9,000, trading
\nmidday in Asia around Rp 8,850.<\/p>\n
The rupiah is sharply higher than levels of around Rp 10,800
\nat the beginning of this month and well below the government's
\nand IMF's year-end target for the currency at Rp 10,000 per
\ndollar.<\/p>\n
Sjahril noted the rupiah has posted strong gains in recent
\ndays, extending a broad advance over the past months.<\/p>\n
Asked at what level the rupiah could reach toward the end of
\nthe year, Sjahril replied: "I would think that a value of between
\nRp 7,000 and 8,000 (is achievable), and that would be
\nsustainable."<\/p>\n
Sjahril attributed the rupiah's strength to reduced demand for
\ndollars.<\/p>\n
This, he said, was partly due to the successful resolution of
\ndomestic banks' external debt and trade credit through the
\nimplementation of the Frankfurt Agreement with creditor banks
\nearlier this year.<\/p>\n
"Although the implementation's success remains to be seen, the
\nagreement reached in Frankfurt...has relaxed pressure on the
\nexchange rate," he said.<\/p>\n
Sjahril said the rupiah has also strengthened on the monetary
\nauthority increasing the supply of dollars to the currency market
\nand the central bank's strict adherence to "strong monetary
\ndiscipline."<\/p>\n
Sjahril said the stronger exchange rate, coupled with lower
\ninflation expectations, has made it possible to let interest
\nrates decline somewhat.<\/p>\n
"It is noteworthy, however, that the decline in interest rates
\nhappened without having to relax monetary aggregates," Sjahril
\nsaid.<\/p>\n
Monitoring<\/p>\n
The central banker also said, "Better monitoring is needed of
\nshort-term capital flows," citing overexposure of corporations to
\nshort-term debt.<\/p>\n
Sjahril reiterated that the country doesn't intend to impose
\ncapital controls, but is studying a plan to better monitor
\nforeign-exchange transactions.<\/p>\n
He noted that Bank Indonesia in April introduced a reporting
\nsystem on the foreign liabilities of the corporate sector, and
\nthat measures to more closely monitor foreign-exchange
\ntransactions are in the pipeline.<\/p>\n
But it was too early to say what form the monitoring would
\ntake or when it would be implemented, he said.<\/p>\n
In an address to the Forum's delegates, Sjahril said the
\ncentral bank was fully aware of the importance of capital inflows
\nto reactivate the Indonesian economy.<\/p>\n
But, he cautioned: "We have learned a lesson that short-term
\ncapital inflows can be very volatile...and therefore should be
\nkept monitored and checked."<\/p>\n
He said that in the spirit of a "market-friendly" policy, a
\n"prudential reporting system and external debt management are
\ndeemed necessary."<\/p>\n
On Tuesday in Jakarta, Sjahril said Indonesia wasn't planning
\nto force exporters to repatriate their foreign exchange earnings,
\nbut was instead working on a draft plan to monitor the flow of
\nforeign exchange better.<\/p>\n
Sjahril noted the inflation rate in October would come in
\nclose to zero, and that only non-fundamental factors were likely
\nto derail the country's improving economic prospects.<\/p>\n
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