Economists confident about rupiah

JAKARTA (JP): Economists are confident that Indonesia's economic fundamentals are strong enough to withstand speculative attacks on the rupiah.

Chairman of the Association of Private National Banks' advisory board, I Nyoman Moena, said yesterday that unlike Thailand and the Philippines which have had to devalue their currencies following speculative attacks, Indonesia's macro economy was relatively stable.

"It will be difficult for speculators to do anything," he said.

"I don't think there will be a devaluation as a result of speculators' attacks," he said.

Economist Dibyo Prabowo said it was unlikely the government would devalue the rupiah soon.

"I believe the government will be very careful ... The (central bank) Bank Indonesia's decision to widen the (dollar- rupiah) spread last week will hopefully rule out devaluation in the near future," he said.

Minister/State Secretary Moerdiono also said, after meeting President Soeharto at Merdeka Palace yesterday, that the fundamentals of the Indonesian economy were strong enough to withstand the pressures of speculative attacks on the rupiah.

Bank Indonesia on Friday widened the dollar-rupiah band, in which the rupiah can float before the central bank intervened, to 12 percent from 8 percent. The move was made the day the Philippine peso was devalued, following the devaluation of the Thai baht early this month.

Dibyo said that unlike Indonesia, Thailand and the Philippines seldom devalued their currencies.

"So we don't necessarily have to copy what they did," he said.

Moena, despite his strong confidence, suggested nonetheless that the government continue to strengthen its foreign exchange reserves, increase cooperation with central banks in the region and prepare adequate stand-by loans to strengthen foreign exchange reserves.

He said the government should anticipate the worse impact of speculative attacks on the rupiah, which brought the currency down 20 points in Friday's trading.

The rupiah slid to a low Rp 2,470 to the dollar early yesterday before it recovered to Rp 2,452 to 2,456 around noon.

"If speculators know that foreign currency reserves are scarce, they can easily calculate the profits they can reap from the weak macro economic condition," he said.

Dibyo said Indonesia should further bolster its exports as this would in turn strengthen the rupiah's value against the U.S dollar.

"Hopefully widening the intervention band will encourage exports and discourage imports, particularly imports of consumer goods," he said.

Bank Indonesia's rupiah intervention band was expanded on Friday to between Rp 2,374 and Rp 2,678 to the U.S dollar.

According to Bank Indonesia's figures, foreign exchange reserves as of June were US$21.08 billion, or sufficient for five months of imports.

Bank Indonesia has stand-by loans which can be used any time to stabilize the rupiah and has repurchasing agreements (repos) with central banks in other Asian countries.

Repos give participants instant access to cash, to defend their currencies against excessive volatility, by selling their holdings in U.S government bonds to partners with a promise to buy them back later.

In Tokyo yesterday, Indonesia's central bank governor and Bank of Japan's governor said in a meeting on Asian currency markets that they would cooperate closely in financial markets, Bank of Japan's executive director, Takashi Anzai, said.

"The Bank of Japan and the Indonesian central bank agreed to maintain close cooperation in various areas," Anzai was quoted by Reuters as saying.

He declined to give any details about the areas in which the two intended to cooperate.

Anzai said that at the meeting between Soedradjad Djiwandono and Bank of Japan Governor Yasuo Matsushita, Soedradjad made no specific request of BOJ.

The Indonesian central bank governor is in Tokyo now as a member of the Indonesian delegation to the annual meeting of the Consultative Group on Indonesia, a creditor consortium, beginning today.

"The fundamentals of our economy are strong and the band for our (central bank) intervention on the rupiah is quite wide," Moerdiono said.

He said the government's move Friday to widen the dollar- rupiah band was to make the fundamentals of the economy even stronger.

The move was to anticipate attacks on the Indonesian currency, he said.

"Whoever dares speculate on the rupiah will only lose." (pwn)

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