Banks told to help boost ailing rupiah

Banks told to help boost ailing rupiah

JAKARTA (JP): President Abdurrahman Wahid has instructed
finance minister Bambang Sudibyo to ask state banks to buy rupiah
in a bid to shore up the falling currency.

Abdurrahman reiterated on Tuesday that the current weakening
of the rupiah against the U.S. dollar was temporary, but warned
that it should not be perceived as a small problem.

"I expect the finance minister to persuade state banks and
banks under government control to help (stabilize the rupiah),"
he told reporters at a news conference explaining the results of
his late meeting with senior government officials on Monday.

In addition to state banks, the government also controls
several privately owned banks which have been taken over by the
Indonesian Bank Restructuring Agency (IBRA), a unit of the
finance ministry.

Abdurrahman, who is also known as Gus Dur, also called on the
supposedly independent Bank Indonesia to take stronger action to
safeguard the local currency.

"I thank Bank Indonesia for the actions they have taken, but
there seems to be a need for stronger action to support the
rupiah," he said.

The President's request goes against a statement by Bank
Indonesia deputy governor Miranda Goeltom who said on Monday that
the central bank would not take stronger monetary action to boost
the rupiah.

Miranda said that boosting interest rates or selling dollars
would not be effective in strengthening the rupiah because the
primary forces behind the currency's fall were nonmonetary
factors, including domestic political uncertainty.

Bank Indonesia became an independent central bank last May.

Meanwhile, dealers said that the President's calls for action
to support the local currency helped prevent a further fall of
the rupiah on Tuesday.

The local unit closed relatively unchanged at Rp 8,535 per
U.S. dollar, compared to its Monday close of Rp 8,540.

A media statement issued by the State Palace said that
Abdurrahman had also instructed the finance minister to review
the impact of the current weakening of the rupiah on the
assumptions used for the 2000 state budget.

"The President has instructed the finance minister to review
the impact of the depreciating rupiah on the (macroeconomic)
assumptions of the state budget, and to take necessary action to
minimize any negative impact," the statement said.

The government based the state budget on an exchange rate
assumption of Rp 7,000 per dollar, inflation assumption of 5
percent to 7 percent, and economic growth of 3.8 percent.

Separately, Bambang Sudibyo said on Tuesday that he had
reviewed the 2000 state budget and concluded there was no need to
revise the assumptions despite the fall of the rupiah.

"I have calculated that there is no need for a revision. Our
spending and revenues are in balance, so our budget is still
safe," Bambang told reporters after meeting with Coordinating
Minister for the Economy, Finance and Industry Kwik Kian Gie.

The President said that the drop of the rupiah against the
U.S. dollar was due to a combination of external factors,
including the falling U.S. stock market and anticipation of an
increase in U.S. interest rates, and domestic problems.

But Abdurrahman said that the domestic problems were temporary
and were expected to be only short-lived.

He said that some people had temporarily left the country on
fears of possible widespread demonstrations in the middle of this
month to commemorate the massive 1998 May rioting which led to
the downfall of then president Soeharto.

Abdurrahman also attributed the weakening of the rupiah to the
slow work of the bureaucracy in tackling economic problems.

"These sorts of things were discussed at our (Monday)
meeting," he said. (rei/prb)