BI upbbeat about economy amid unrest fears

BI upbbeat about economy amid unrest fears

AMSTERDAM (Dow Jones): Bank Indonesia Governor Sjahril Sabirin Friday said he was "optimistic" that despite possible domestic and international disruptions, Indonesian inflation and the rupiah will stay within the levels targeted by the government in its 1999-2000 budget.

Sjahril said, "People shouldn't get overly worried."

The central bank governor also said that the direction of the Indonesian would likely remain the same even after the general elections in June

"Whoever will win the elections, I think the current lines in economic leadership will be continued," Sjahril told Dow Jones Newswires in an interview during a four-day visit to the Netherlands.

He didn't rule out the possibility of unrest during the run up to the elections, however.

Jakarta released a draft of the 1999-2000 budget in January, targeting annual inflation at around 17 percent and the currency at Rp 7,500 to the dollar.

The rupiah closed Friday at Rp 8,850 against the American greenback.

Meanwhile, Bank Indonesian Director Miranda Goeltom said Indonesian interest rates were "within boundaries."

"Given the problems, like the scare of a (Chinese) yuan devaluation and the crisis in Brazil, as well as some domestic unrest, the rise in interest rates doesn't really show a jump," Miranda said.

Miranda also said she believes an interest rate level of "around 30 percent" could be reached in the 1999-2000 budget year, which starts on April 1, although she stressed the government doesn't set targets for interest rates.

Friday in Jakarta, Indonesia's overnight interbank rate -considered the benchmark rate- was between 31 percent and 34 percent for foreign and financially sound local banks.

About the restructuring of the country's banking industry, he said fewer than 40 ailing banks will be closed around the end of February.

"I think it will be below 40 banks," he said.

He declined to be more specific on the subject.

The Indonesian government previously has announced plans to close by the end of February banks with a capital adequacy ratio of worse than -25 percent, or whose business plans have been rejected by the central bank.

Some small banks, seen earmarked for closure by the end of the month, however, increased their bid rates to 60 percent, from 50 percent late on Thursday, as they are facing a liquidity shortage.

Sjahril said his main purpose during his Dutch visit has been to give "the real picture, first hand" of the Indonesian economy, and what steps have been taken to tackle the country's problems, including efforts to clean up the ailing banking system.

"We hope that our explanation here will help the Dutch banks who are in Indonesia to make the right decision. Of course we hope that they will stay, and even expand their investments," Sjahril said.

He met Thursday and Friday with the leadership of the Dutch central bank and leading private banks such as ABN Amro, Rabobank and ING.

Indonesia has been grappling with a financial crisis since the latter part of 1997, the worst the country has seen in over three decades, coupled with political volatility.