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.