Bambang says inflation rate will drop sharply

Bambang says inflation rate will drop sharply

WASHINGTON (Dow Jones): Indonesian Finance Minister Bambang Subianto said Friday Indonesia's rate of inflation will drop sharply in coming months and that since June the base money supply, Indonesia's key monetary indicator, has shown no growth.

Bambang's comments were in the text of speech to be delivered at a conference hosted by the Brookings Institute and the Harvard Institute for International Development.

"Although the sharp depreciation of the rupiah is still working its way through our price system, I am confident that the relative stability of the rupiah in the past few months, combined with monetary restraints will allow for a substantial decline in inflation over the coming months," Bambang said.

In the speech, Bambang called for tighter supervision of banks, enforcement of laws impartially, better financial disclosure, the avoidance of moral hazard, and that bank managers be more severely punished for bank failures.

At the conference, Bambang said the essence of the banking bill now being debated by the House of Representatives (DPR) was is that Indonesian banks will be allowed full foreign ownership and that foreign banks will be free to open branches in Indonesia.

"A bank is a bank," Bambang said, adding that all banks in Indonesia will be supervised in the same manner regardless of their ownership.

Bambang said current law doesn't allow for foreign ownership of banks in Indonesia.

He explained the most difficult part of handling the failed banks is selling off the property they own.

Bambang, who acknowledged in his comments that Indonesia's past exchange rate regime "encouraged risky behavior," said the minimum estimated cost of the bank bailout is $1.5 billion.

Although the Indonesian government has taken big stakes in seven big banks, four of which are still in operation, the government has no interest in keeping those banks under its control and wants to sell it shares as soon as possible, Bambang said.

Bambang also expressed satisfaction with the outlook for this year's rice crop.

"A sharp improvement in our agricultural sector will help cushion the impact of the economic crisis that is forcing millions of job losers to return to the rural areas," he said.