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 Suharto 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 neighbours.

"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.