Feeble rupiah unlikely to infect neighbors' currencies: Bankers
Feeble rupiah unlikely to infect neighbors' currencies: Bankers
Martin Abbugao, Agence France-Presse, Singapore
Indonesia's feeble rupiah is unlikely to infect its neighbors' currencies and trigger a repetition of the 1997-1998 East Asian meltdown, top international bankers and financial experts said.
The heads of the International Monetary Fund (IMF) and Asian Development Bank (ADB) both issued assurances the rupiah's troubles are under control and the region is now in a stronger position to deal with financial upheavals.
The rupiah last week plunged to four-year lows of 11,800 against the U.S. dollar as Indonesia spent more dollars to pay for costlier fuel imports, while domestic oil subsidies depleted government coffers.
The rupiah's decline has spawned some concern of a repeat of the Asian financial crisis, which erupted after Thailand devalued the baht in July 1997, sparking a currency free-fall that sent the region into a recession.
Indonesia was among the hardest hit. The rupiah crashed to a low of 16,800 in June 1998, prompting a multi-billion dollar bailout led by the IMF.
The rupiah closed at 10,125-10,325 on Thursday, ahead of a public holiday on Friday. The currency has lost about 15 percent of its value this year.
"I don't think there's a risk of contagion or anything like that at this stage because the economic fundamentals of Indonesia have greatly improved in the last couple of years," ADB president Haruhiko Kuroda told reporters in Singapore on Friday.
"Fiscal consolidation has made major progress, the financial sector has strengthened and various structural reforms were made, including cuts on subsidies on gasoline last year," he said, supporting a further reduction of oil subsidies. ` But removing subsidies is politically sensitive in Indonesia, the world's fourth biggest nation with about 220 million people, many of them poor.
Soaring fuel prices in 1998 were one factor that ignited mass riots which eventually resulted in dictator Soeharto stepping down after 32 years in power.
But subsidies are also a drain on the national budget, eroding the government's ability to deal with poverty in the longer term.
IMF managing director Rodrigo Rato also dismissed fears of another regional financial crisis caused by the rupiah's recent fall, saying Indonesia is healthier now compared to eight years ago.
"The fact is that the Indonesian economy is on a very strong footing and we believe that it will certainly be able to solve its actual problems," Rato said in Singapore on Saturday after attending a seminar of Asia-Pacific finance officials and central bankers.
Rato praised the Indonesian central bank for pursuing a "clear and transparent monetary policy" and implementing structural reforms.
Since the end of the Asian crisis, Indonesia has taken steps to rid the government of non-performing assets and overhauled the banking and financial system, among others.
Tharman Shanmugaratnam, deputy managing director of the Monetary Authority of Singapore (MAS), said developments in Indonesia would always have an impact on its neighbors.
"But we are not concerned at this point because we are fully confident that the Indonesian government will be able to rebuild confidence in the currency," Shanmugaratnam told reporters after the weekend financial seminar here.
"In fact, they have already embarked on a credible set of measures to rebuild that confidence. The fundamentals are strong. All serious observers take that perspective on the Indonesian economy.
Malaysian central bank governor Zeti Akhtar Aziz said in Kuala Lumpur on Thursday that "we don't expect the contagion to affect Malaysia and the (Southeast Asian) region."
U.S. credit rating agency Standard and Poor's said the healthier credit quality of Indonesian issuers, budget surpluses and a sound economic growth would give Jakarta room for fiscal maneuver.
"Structural reforms since 1997 have bolstered the Indonesian economy and fortified the banking sector, buying the government time to make adjustments in policy aimed at stabilizing the currency and tackling underlying causes and problems," it said.
Still, central bankers at their meeting agreed Asia must work to achieve regional financial integration by pursuing initiatives to develop the capital and bond markets as well as to harmonize regulatory standards and codes.
"We see clearly that strong regional financial markets could provide Asia with (a) resilient structure to absorb external chocks and to be less vulnerable," the IMF's Rato said.