Tue, 31 Oct 2000

Abdurrahman says political factors behind rupiah's fall

JAKARTA (JP): President Abdurrahman Wahid told the International Monetary Fund (IMF) on Monday that the rupiah's plunge in value was caused by a perception of political instability.

"The IMF delegation (expressed) concern over weak market sentiment which has recently been demonstrated by the fall of the rupiah's value," presidential spokesman Wimar Witoelar told journalists.

"The president conveyed his concern that this is due to a perception which suggested that political and security stability has not yet been achieved."

Wimar was speaking after a meeting at the presidential palace between Abdurrahman and visiting IMF Asia-Pacific director Yusuke Horiguchi.

Wimar said the President told Horiguchi: "Various pressure (groups) calling for his resignation could also be perceived as political instability."

Several economists and politicians have in the past week said Abdurrahman should resign after he and his government failed to improve the country's economy after one year in office.

Violent rioting and unrest have also continued to plague several parts of the country.

The rupiah ended lower at Rp 9,400 per U.S. dollar late on Monday compared to around Rp 9,115 late on Friday. The level is the lowest since July and is down some 33 percent from the level early this year.

Dealers said that in addition to politics, the rupiah was also affected by the weakening of other currencies in the region particularly the Philippine peso and Thai baht.

But dealers said that dollar selling believed to be made by state banks has helped prevent a further plunge in the rupiah.

Following a separate meeting with Vice President Megawati Soekarnoputri on Monday, Horiguchi spelled out the dangers faced by the government if it failed to lift the market.

"If market sentiment does not strengthen, your investment will be weakening, the growth will be weakening and the people of your country will be suffering," he told journalists.

Wimar added the IMF's representative also relayed to Abdurrahman the body's concern on other issues, including slow asset sales by the Indonesian Bank Restructuring Agency (IBRA) and the restructuring of debt owed by large debtors.

"Both sides agree that asset sales must be accelerated and carried out transparently," he said.

The IMF is providing a multi billion dollar cash bailout to help finance the country's economic reform program.

The IMF said earlier on Saturday that accelerating the sale of IBRA assets as well as continuing the other Fund-sponsored economic programs were crucial to help revive confidence in the economy.

Separately, finance minister Prijadi Praptosuhardjo told parliament on Monday that another factor causing the rupiah to fall was reports that the government was planning to ask international creditors for a debt moratorium.

"There's a misperception in the market now," Prijadi told House of Representatives commission IX on state budget and banking during a meeting.

He said that the government was planning a normal rescheduling mechanism for its sovereign debt, not a debt moratorium.

"The market in Singapore has panicked because of this term debt moratorium," he said, pointing out that a debt moratorium would mean that the government could no longer finance its development activities.

Prijadi also said that the government had asked Bank Indonesia to intervene to help strengthen the rupiah when the currency fell to below the Rp 9,000 level last week.

"But we can't force Bank Indonesia," he said, pointing out that Bank Indonesia was an independent central bank.

He added that the government had also appealed to domestic banks to sell their dollars to help lift the local currency.

Meanwhile, Bank Indonesia senior deputy governor Anwar Nasution said that the central bank would intervene to help strengthen the rupiah if it was necessary.

Anwar said that central bank could intervene by raising interest rates or directing the sale of dollars.

The benchmark interest rate of Bank Indonesia one-month SBI promissory notes is currently hovering at 13.74 percent. The interest rate is decided via a weekly auction of the SBI notes on every Wednesday. (byg/rei)