BI urged to maintain tight money policy

JAKARTA (JP): The current strengthening of the rupiah is not yet sustainable and therefore Bank Indonesia should not overreact by relaxing its monetary policy, the Indonesian Economists Association's chairman Marzuki Usman suggested on Thursday.

Marzuki, also minister of tourism, arts and culture, said the central bank should maintain its current tight monetary policy until the exchange rate was really stable.

"If Bank Indonesia is lured to lower rates just because of the current strengthening of the rupiah, and inject funds into the market again, then in a short time, rupiah will weaken again," Marzuki said.

Bank Indonesia has moved to lower the benchmark rates of its one-month promissory notes (SBIs) from over 70 percent in early September to below 60 percent now following the rupiah's climb.

He said the rise of the rupiah to between 8,000 and 9,000 against the U.S. dollar now, from over 10,000 in September, was not caused by domestic factors, but rather by the weakening of the greenback against global major currencies.

"I think the weakening of the U.S dollar has been engineered because of the looming global depression which could drag on the United States," Marzuki was quoted by Antara as saying.

He said the United States was aware of the danger of keeping the dollar high as it could lead to the recurrence of the global depression of 1933.

Besides the weakening dollar, the rupiah's strength was also boosted by market talk of the possible imposition of government capital controls, Marzuki said.

He said the market should not worry about the capital control issue, stressing that the government would only improve the monitoring of capital flows.

The monitoring is needed because "we are now too free. Even in the U.S., there are records of capital flows," he said. (29)