Central bank constrained to support falling rupiah

Central bank constrained to support falling rupiah

SEOUL (Dow Jones): Bank Indonesia (BI) is constrained in its ability to support the falling rupiah, the central bank's Acting Governor Anwar Nasution said Thursday.

"I believe that there is some limit to what we can do to defend the rupiah," Nasution told Dow Jones Newswires before the start Friday of the Executives' Meeting of East Asia and Pacific Central Banks, or EMEAP.

In addition to the continued worldwide strength of the U.S. dollar, the rupiah has also been clearly weakened by domestic political and economic unrest, Nasution said, which he described as "the price of democracy we have to pay."

Still, Nasution said that the Indonesian government has no plans to make any significant changes in its existing foreign exchange regime, maintaining that "we're not about to introduce capital controls or a currency board system."

Nasution said that taking such measures would only be appropriate in case of a crisis.

"We're not in a crisis," he said, arguing that the country was experiencing "only temporary" financial market turbulence.

"It's like flying from here to Jakarta," he said. "The way is bumpy but I don't think this is a reason to change plans."

Around 11:09 GMT (7:09 a.m. EDT), the dollar was quoted at Rp 9,283, down from Rp 9,355 late Wednesday.

Nasution said the Indonesian government will sign its letter of intent with the International Monetary Fund (IMF) in two weeks to receive the next tranche of its IMF loan.

The signing of the letter should boost confidence in Indonesia, he said. The pace of Indonesian bank restructuring has been "very slow but we're making progress," Nasution said.

Asked about what impact the detention of Bank Indonesia Governor Sjahril Sabirin was having on morale at the central bank, Nasution said that "we are very sad about the events," adding that, "the show goes on...it doesn't affect day-to-day operations."