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."