BI warns speculators of deportation

JAKARTA (JP): Bank Indonesia senior deputy governor Anwar Nasution warned on Wednesday that foreign currency traders and bankers violating prudential banking rules would be expelled from the country.

Anwar said that the central bank would now be more serious in enforcing the country's banking regulations.

"If the foreign bankers violate (the regulations), they will be deported. We don't need those kind of people in this Republic," he told reporters at a weekly press gathering.

He said that local traders and bankers proved to be violating the regulations would be banned from entering the industry for the rest of their lives.

In a bid to help curb speculation in the rupiah, Bank Indonesia has sent its inspectors to foreign exchange banks operating in the country to ensure that they abide by the existing prudential regulations, including a prohibition on banks exceeding the daily 20 percent net open position limit, and from opening forward dollar contracts worth more than US$5 million with non-residents.

The central bank has said that it would continue the on-the- spot inspection measures.

Anwar said that such measures had helped in the recent strengthening of the rupiah against the U.S. dollar.

The rupiah has been hovering at around Rp 8,600 lately compared to a 21-month low of Rp 9,570 per dollar last month.

Anwar also said that the central bank is committed to maintaining the current free float exchange rate system which was introduced in August 1997.

"We have no intention of returning to the fixed exchange rate system nor implementing a currency board system (CBS)," he said.

He stressed that this commitment is contained in the recent letter of intent agreed by the government and the International Monetary Fund.

He explained that in addition to the lack of supporting resources, the country's economic and political conditions were not in a such a bad shape as to force the authorities to introduce a drastic measure like the CBS system.

"But if the economic and political conditions become completely chaotic, then I would not be against introducing the CBS," he said.

Under the CBS system, the rupiah would be pegged at a certain rate to a hard currency like the U.S. dollar.

There have been reports that some members of the People's Consultative Assembly (MPR), the country's highest legislative body, have been pushing for the introduction of the CBS system to help stabilize the ailing rupiah.

An earlier attempt by former president Soeharto's administration to introduce the CBS system failed due to its widespread rejection.

Anwar said that he expected the rupiah to continue strengthening as the economy recovers and confidence returns.

"I'm certain that the recent strengthening in the rupiah is because of the return of confidence, especially among the (country's) exporters," he said.

Bank Indonesia held a meeting last week with the country's exporters in a bid to persuade them to park their export earnings in the country instead of overseas.

There has been speculation that some US$80 billion in Indonesian export earnings is parked overseas.

Meanwhile, the rupiah declined slightly late on Wednesday to Rp 8,625 per U.S. dollar compared to Rp 8,605 late on Tuesday.

In a related development, the central bank also reported Wednesday that the country's gross foreign exchange reserves rose to $27.56 billion in the week ending Aug. 4, from $27.41 billion a week earlier.

Bank Indonesia said the increase was due to the higher receipts from the sale of oil.

The central bank also reported that the benchmark interest rate of Bank Indonesia one-month SBI promissory notes was unchanged at 13.52 percent on Wednesday's auction.

The interest rate on three-month SBI notes declined to 13.29 percent compared to the previous level of 13.49 percent.

Bank Indonesia senior official Tarmiden Sitorus said that there was still room for the central bank to allow a further decline in the interest rate due to the strengthening of the rupiah and improvements in the macro economic situation.

He, however, said that the central bank was still concerned about the inflationary pressure to be created by the hike in fuel prices later this year.

Bank Indonesia said in a statement earlier that it expected the 5-7 percent inflation target for this year would be exceeded.(rei)