Argentina central bank not advising RI

Argentina central bank not advising RI

NEW YORK (Reuters): Argentina's central bank president, Pedro
Pou, said his institution has not advised Indonesia about setting
up a currency board, but noted that a healthy banking system and
strong government were essential preconditions to putting such a
system in place.

A team from Indonesia's central bank, which had met with
Chilean officials in Santiago earlier this week, were in
Argentina on Friday, but the Indonesian embassy in Buenos Aires
said the team would depart Friday afternoon.

Pou said the Argentine central bank had not met with the
Indonesian team, and Argentina's economy ministry in Buenos Aires
said it had not spoken with the visiting team.

"We are not giving them any advice," Pou told reporters after
addressing the Americas Society here. "We haven't been asked."

An Indonesian embassy official in Buenos Aires said the team,
including Burhanuddin Abdullah, Bank Indonesia's deputy director
of economic research and monetary policy, had cut its visit to
Argentina short. Team members had been planning to stay through
the weekend.

Indonesia has raised the possibility of implementing a
currency board to stabilize its battered currency, but has sent
out discreet signals it would back away from the plan.

A currency board would peg the Indonesian rupiah to another
currency, most likely the U.S. dollar, with foreign exchange
reserves matching local currency in circulation.

But the International Monetary Fund and major industrial
nations have opposed the plan, stating that the Indonesian
economic and banking systems are not strong enough.

Financial analysts often cite Argentina as an example of the
potential benefits of a currency board system, as Buenos Aires
put an end to hyperinflation and decades of macroeconomic
mismanagement after it adopted the system in 1991.

Pou said he saw three essential conditions for a currency
board.

A strong government would be needed to face the political
problems involved with imposing major budget constraints, the
investment process would need to be privately led and the banking
sector sound, Pou said.

"You have to have a banking system that is in very good
shape," Pou said. "You cannot have very large hidden liabilities
in the banking system."