Current monetary policy expected to be maintained

Current monetary policy expected to be maintained

JAKARTA (JP): The current monetary policy will remain for the
foreseeable future even though there will be cabinet changes next
year, according to a senior economist.

Sjahrir said Saturday that the new cabinet would, for example,
maintain the managed floating exchange rate to keep the rupiah
within a realistic range.

"With the system (of the managed floating exchange rate),
Indonesia has successfully overcome the frequent speculative
assaults on the rupiah," he told a seminar on strategies to
become successful businessmen.

Sjahrir said that the recent attacks on the rupiah, which
forced Bank Indonesia (the central bank) to intervene in the
market, did not cause the country's currency to drop as low as
Thailand's baht or the Philippines' peso.

"However, due to the rupiah panic on July 21, we can be
certain that the rupiah's depreciation against the U.S. dollar
will be higher than the government's original target of between 5
percent and 6 percent per year," he said in his paper on the
prospects of the Indonesian economy in the era after the general
assembly of the People's Consultative Assembly (MPR).

The MPR, comprising all 500 members of the House of
Representatives and 500 representatives of various groups,
professions and regions, meets in March to elect the President
and Vice President. It will also establish the five-yearly state
guidelines.

Sjahrir said that the middle rate of the rupiah was projected
to reach 2,580 per dollar by the end of 1997 and about 2,734 by
the end of 1998.

With such figures, Indonesia would find it tougher to reach a
per capita income of US$2,300 by 2005, as projected by the World
Bank.

Sjahrir said that the per capita Gross Domestic Product (GDP)
would be only around $1,300 in 1998. Though the per capita GDP,
in terms of rupiah, will increase by 16 percent in 1998, it would
only increase by 9.4 percent in terms of the dollar (at its
present value) due to the faster depreciation of the rupiah
against the dollar.

"In 1997, the country's per capita income, in rupiah, is
estimated to rise by 16 percent, while in dollars the increase
will be only 4.3 percent," he said.

Sjahrir rated the government as being "very experienced" in
taming speculative attacks on the rupiah. The government was
forced to devalue the currency in 1971, 1978, 1983 and 1986.

"Based on the facts, the monetary authorities will be extra
cautious on their conversion rate policy. The devaluation,
particularly the one in September 1986, was a bitter experience
for both the public, who thought that they had been cheated at
the time, and the government itself."

Since then, according to Sjahrir, the monetary authorities
have become more flexible.

"For instance, Bank Indonesia has expanded the intervention
band of the currency several times. In July the band was widened
to 12 percent from 8 percent to reduce the number of speculative
attacks on the rupiah."

Indonesia's exchange rate policy is different from those
adopted by Thailand and the Philippines, which pegged their
currencies to the U.S. dollar before devaluing them last month,
after finding their currencies over valued.

"Many people are still worried that the speculative attacks
will continue and then the related question now is what the
central bank will do if it fails to tame the assault," he said.

"There is only a small possibility Bank Indonesia will devalue
the rupiah if it fails in its intervention because devaluation
will hamper the country's economy, especially when Indonesia has
to repay its increasing overseas debts."

"If the governor of Bank Indonesia and the minister of finance
in the next cabinet are also conservative, cautious and not fond
of surprises, they will possibly widen the spread of the
intervention band. With a broader (intervention) band, the rupiah
will move more flexibly and discourage speculators from attacking
the currency."

Sjahrir estimated economic growth in 1998 would reach 7.8
percent, a bit higher than the 7.7 percent projected for 1997.
(icn)

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