BI: Rupiah at mercy of political rifts

BI: Rupiah at mercy of political rifts

JAKARTA (JP): Bank Indonesia senior deputy governor Anwar
Nasution warned on Tuesday the rupiah would weaken further if
political conflicts and lawlessness continued.

"The rupiah will continue to weaken if we fail to control the
tempo in the political arena," he said before a meeting with
senior economic ministers.

The weakening of the rupiah against the U.S. dollar has been
primarily due to domestic political tension and security
problems, he added.

Anwar said the special hearing of the People's Consultative
Assembly (MPR) in August, at which some legislators have
threatened to attempt to oust President Abdurrahman Wahid, was
unnerving the currency market.

"The fate of the rupiah will depend on development in the
economy, politics and security," he said."If we continue to fight
and burn other people's property (the rupiah will continue to
weaken)."

Anwar appealed to all sides -- including politicians,
students, workers and the President himself -- to refrain from
making political maneuvers that would only cause jitters in the
economic market.

He said the central bank would only intervene if it deemed the
action effective in bolstering the rupiah.

"It (the intervention) will depend on the situation and the
need. But the fate of the rupiah doesn't only depend on the
central bank intervention, but on the efforts of all of us."

Anwar dismissed suggestions the central bank should raise
domestic interest rates to support the rupiah.

"The interest rate here is already the highest on earth," he
said.

The interest rate of the central bank one-month SBI promissory
note is currently 10.99 percent.

Anwar said a further weakening of the rupiah might cause
inflation to move beyond the 5 percent to 7 percent target for
the year.

"That's why we must make efforts so that the weakening of the
rupiah doesn't drag on."

He said the target of Rp 7,000 to Rp 7,500 to the greenback
would be attainable if the government was "serious" in creating
political stability.

The rupiah, which has been under pressure for the past two
weeks, closed lower at Rp 8,445 per U.S. dollar on Tuesday from
Rp 8,318 on Monday.

Meanwhile, head of the Central Bureau of Statistics (BPS)
Sugito Suwito said on Tuesday that inflation would likely to
increase in May due to the weakening of the rupiah.

Sugito said the increase would probably be limited to 2
percent.

He said inflation would only increase by more than 2 percent
if the rupiah dropped to about the Rp 12,000 level.

Sugito also maintained his earlier forecast that the economy
would only grow by about 1.5 percent this year if political
infighting persisted.

The government forecast the gross domestic product (GDP) would
grow between 3 percent and 4 percent in 2000.

Separately, Centre for Strategic and International Studies
(CSIS) economist Mari Elka Pangestu said GDP in 2000 would likely
grow between 2 percent and 3 percent due to the current political
tension.

Mari said 4 percent growth would only be possible if there was
new investment flowing into the country.

She said investors would not make new investment if political
uncertainty remained.

"People are now looking at what would happen in August," she
said.

"Let's just hope that everything goes well in August." (rei)