Wed, 24 May 2000

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)