BI says political stability a must for economic reform
BI says political stability a must for economic reform
WASHINGTON (Reuters): Improving Indonesia's fragile political stability is the key to restoring the credibility of the country's stalled economic reform program, the deputy governor of Indonesia's central bank said on Monday.
"If the political situation improves then maybe we can give monetary policy a chance to work," Achjar IRAs, deputy governor of Bank Indonesia told Reuters in an interview.
"To implement a tough program of economic reform, there is no easy policy. For a difficult policy you need to have a commitment from the government, supported by the parliament," he added.
Indonesia's parliament instead has been preoccupied with a second censure of President Abdurrahman Wahid over two graft scandals, involvement in which he denies.
Parliament voted for censure earlier on Monday, setting the stage for the possible impeachment of the near-blind Muslim cleric and more instability for the troubled country.
The censure heaps pressure on Wahid to step down and increases speculation he will not survive to serve out his term, which expires in 2004.
That has raised fears in financial markets of bloodshed if Wahid's supporters clash with those of his opponents.
Iljas, speaking on the sidelines of the IMF and World Bank spring meetings here, said there was a risk of violence if Wahid's supporters misconstrued newly instituted democratic processes -- including that of censure -- as being designed to oust him.
"This is a democratic process... I hope any protests will be peaceful and there will be no panic in the market," Iljas said.
Wahid has 30 days to respond to the censure.
Turbulent politics have knocked the rupiah currency clattering down to 30-month lows recently and the country's stock market is one of the worst performing in Asia this year, down about 14 percent so far.
But as fears of violence on the streets of Jakarta faded slightly on Monday, the rupiah rose to one-week highs of 11,550 to the dollar.
Asked if the rupiah risked sinking past 12,000 during the coming 30 days, Iljas said: "I hope not."
"Once confidence can be restored, the rupiah should benefit from that because then capital flows can start," he added.
Stability in the rupiah is essential for Indonesia to fight inflation and keep to ambitious budget deficit targets being demanded by the IMF as a condition to restarting a stalled $5 billion loan program.
Iljas said talks with IMF officials during the weekend meetings had not included any additional negotiation on the release of a $400 million tranche of money delayed since December.
"We have already had meetings with the IMF mission (in Jakarta). There was no extra detail discussed," Iljas said.
A high level IMF team left Jakarta last week saying the cash tap would only be turned on if Indonesia's parliament passed a revised 2001 budget slashing growth forecasts to 3.25-3.75 percent from five percent.
IMF Managing Director Horst Koehler added at the weekend that restoring law and order was also vital. Iljas said if non-economic risks were removed there would be less pressure on the exchange rate, less pressure on inflation and less pressure for monetary tightening at a time when the global economy is slowing, leading many other central banks to lower interest rates.
Some economists now argue that the most expedient way to achieve rupiah stability is to impose capital controls, like those in Malaysia.
But Iljas ruled out a shift from Indonesia's free float, which he said was now enshrined in law.
"We do not think that way. For the time being I don't think we need to change the system. Our main problem is not there, are main problem is (politics)," he said.