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."