Economy may improve soon: Syahril
Economy may improve soon: Syahril
YOGYAKARTA (JP): Bank Indonesia (BI) Governor Syahril Sabirin
has expressed optimism that the economy will improve within the
next two to three months if "non-economic factors" in the country
stabilize.
"If conditions stabilize, I would expect interest rates to be
cut and the rupiah to strengthen to between 6,000 and 7,000 per
U.S. dollar," Syahril told reporters at a seminar here on
Saturday.
The rupiah closed at 11,200 against the U.S. dollar last week
compared to its pre-crisis level of around 2,450 in July last
year.
Trading on the currency was relatively quiet last week due to
increasing concern over political instability.
Sjahril said that demonstrations in various cities across the
country had been partly responsible for the weakening of the
rupiah.
Currency traders mostly agreed with Sjahril and blamed
increasing social unrest for the most recent fall in the rupiah.
They said fear of instability had kept offshore operators out of
the market.
Social tension has risen considerably over the past two weeks
and riots sparked by food shortages have erupted in several towns
across the country.
Syahril stressed on Saturday that Indonesia would not copy
Malaysia and implement currency controls, saying the move would
hinder the flow of capital into the country.
"Any such move would prevent both domestic capital and foreign
capital which has left the country from returning," he said.
Controls on the exchange rate would also need a strong and
complex administrative system and very tight supervision.
"If there was any leakage or irregularities in the system, the
impact on the country would be very damaging," he said, adding
that this would cause the rupiah to weaken even further.
Syahril said the government would minimize the negative impact
of a freely floating foreign exchange regime by limiting forward
sales of the currency and prohibiting the provision of credit to
non-residents.
He said the government also needed to strengthen the system
used to monitor the flow of capital into and out of the country
to lower the risks associated with the current exchange rate
regime.
Rumors that Indonesia would introduce capital controls have
caused concern in the local and regional stock markets since
Malaysia introduced similar controls earlier this month.
Sjahril stressed that the government would persevere with the
current system and would not resort to fixing exchange rates at
pre-determined levels.
"In this condition, maintaining a floating exchange rate is
important because it signals that the government is being
consistent with its policies," he said. (23/44/das)