Uncertainty could affect budget: BI<\/p>\n
JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin warned
\non Thursday that the basic macroeconomic assumptions used in the
\nrevised 2001 state budget would not be realistic if political
\nuncertainty in the country continued throughout the rest of the
\nyear.<\/p>\n
Sjahril said that the proposed new budget assumptions were
\nconsidered \"realistic,\" only on the assumption that political
\nconditions improved significantly in the second half of this
\nyear.<\/p>\n
\"If the (political) situation does not improve significantly,
\nI'm not sure whether the assumptions can be met,\" he told the
\nHouse of Representatives state budget task force during a
\nmeeting.<\/p>\n
The government has proposed to the House a revision of the
\nJanuary-December 2001 state budget, following the recent sharp
\nplunge in the exchange rate of the rupiah against the U.S.
\ndollar, and rising domestic interest rate.<\/p>\n
Under the proposed revision, the average rupiah exchange rate
\nis set at Rp 9,600 per U.S. dollar (compared with an earlier
\nassumption of Rp 7,800 per dollar), inflation rate 9.3 percent
\n(7.2 percent), and interest rate of Bank Indonesia 3-month SBI
\npromissory notes at 15 percent (11.5 percent).<\/p>\n
The drop in the value of the rupiah has been partly due to
\nongoing political uncertainty, as embattled President Abdurrahman
\nWahid has been under strong pressure from the House to step down
\nand hand over power to the popular Vice President Megawati
\nSoekarnoputri.<\/p>\n
The country's top legislature, the People's Consultative
\nAssembly, will hold a special session in early August that could
\nresult in the impeachment of the President.<\/p>\n
Bank Indonesia deputy governor Achjar Iljas said that in order
\nfor the exchange rate assumption of 9,600 per dollar to be
\nrealized, the average exchange rate over the next seven months
\nwould need to be at around Rp 9,300 per dollar.<\/p>\n
\"The exchange rate of the rupiah has been affected by not only
\neconomic, but also non-economic factors, particularly politics
\nand security. So if these factors do not improve significantly,
\nit's difficult to expect an average exchange rate of Rp 9,600 per
\ndollar,\" Achjar said.<\/p>\n
The average exchange rate of the rupiah during the first five
\nmonths was around Rp 10,342 per dollar. The rupiah closed at Rp
\n11,160 per dollar late on Thursday, slightly higher than its rate
\nof Rp 11,210 on Wednesday.<\/p>\n
The exchange rate of the rupiah is also closely linked to the
\ninflation rate, as the country's economy is highly dependent on
\nimported raw materials. If the rupiah drops, inflation will
\nincrease (due to higher import costs), thus pushing interest rate
\nfurther upward.<\/p>\n
Meanwhile, Bank Indonesia deputy governor Miranda Goeltom said
\nthat amid the current uncertainty, the central bank would
\nmaintain its tight monetary policy.<\/p>\n
However, Miranda added that Bank Indonesia would loosen its
\nmonetary policy if the political situation improved in the second
\nhalf of this year.<\/p>\n
She said that the interest rate on 1-month SBI notes could
\nincrease to almost 17 percent by August, given the current
\nuncertainty.<\/p>\n
The benchmark interest rate is currently hovering at 16.38
\npercent.<\/p>\n
But Miranda added that if the political situation improved,
\nthe benchmark interest rate could fall to around 15 percent,
\nallowing the interest rate on 3-month SBI notes to go down to 14
\npercent - 16 percent, in line with the government's budget
\ntarget.<\/p>\n
When asked by legislators to define what Bank Indonesia meant
\nby \"improvements in the political situation\", Sjahril said, \"It's
\ndifficult to say exactly, because it's a relative thing. What's
\nimportant is a significant improvement that could increase market
\nconfidence in the economy.\"<\/p>\n
Some legislators had said earlier that the resignation of
\nAbdurrahman could improve the political situation.<\/p>\n
Elsewhere, Sjahril said that the interest rate assumption of
\n15 percent was already realistic.<\/p>\n
He said that if the interest rate assumption were lowered, as
\ndemanded by some legislators, the financial market would deem it
\nnon-realistic.<\/p>\n
Miranda warned that if the budget assumptions were not
\nrealistic, the rupiah could immediately tumble, as when the
\ngovernment proposed the 1998\/99 state budget with grossly
\nunrealistic assumptions. The rupiah then immediately tumbled to
\nRp 7,000 per dollar from Rp 5,000.(rei)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/uncertainty-could-affect-budget-bi-1447893297",
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