Fixed exchange rate system still an option: PDI-P

JAKARTA (JP): Indonesia may have to reemploy a fixed exchange rate system if its currency continues to be treated "unfairly", according to a legislator of the Indonesian Democratic Party of Struggle (PDI Perjuangan).

Theo F. Teomeon, who is also a currency expert, said on the weekend that such a measure would be an option if creating a new credible government and upholding the supremacy of the law fail to strengthen the rupiah.

"If we continue to receive unfair treatment, sooner or latter that (implementing a fixed exchange rate system) would have to be considered," Theo told reporters on the sidelines of the second day of the General Session of the People's Consultative Assembly (MPR), the country's highest legislative body, which is set to elect the next president on Oct. 20.

PDI Perjuangan Chairwoman Megawati Sukarnoputri is the most popular presidential candidate.

Theo did not explain what he meant by unfair.

The country has been devastated by the current economic crisis, which began in August 1997 when the rupiah collapsed after the government abandoned its managed float system and allowed the rupiah to move in a free-float system.

International speculators have also been partly blamed for the collapse in the region's currencies, which started with the baht in Thailand.

The rupiah tumbled to more than Rp 17,000 to the U.S. dollar in January compared to around Rp 2,450 before the crisis began. Former president Soeharto stepped down in May 1998 amid a deepening economic crisis.

After strengthening to around Rp 6,500 per dollar a couple of months ago, it tumbled again, to around Rp 8,400 in the wake of President B.J. Habibie's "misguided" policy on East Timor, and the Bank Bali scandal, which implicated his inner circle.

But Theo is confident that creating a new credible government would restore confidence in the country, which will, in turn, strengthen the rupiah.

"So it's too early to tell (whether a Megawati-led government would employ the fixed exchange rate system)," he said.

"We still have to give the new government a chance to talk with the international lenders (IMF)," he added.

The International Monetary Fund (IMF), which is organizing a US$46 billion bailout fund for the country, has said that it was not the right time yet for Indonesia to return to the fixed exchange rate system.

The country employed such a system in the late 1960s and early 1970s.

It was Kwik Kian Gie, Megawati's top economic adviser, who first raised in April the possibility of Indonesia returning to the fixed exchange rate system to help strengthen the rupiah to the Rp 5,000 level.

Kwik said that the country's crippled business sector could repay its overseas debts and resume production only if the rupiah strengthened to the Rp 5,000 level, especially because the manufacturing industry relied heavily on imported raw materials.

Kwik said at the time that his party would endeavor to reintroduce the fixed exchange rate system if it won the general election, but added it would first seek international support for such a drastic move.

He explained that the support of the international community was essential because the country would need more than $20 billion in foreign loans to bolster its foreign exchange reserves in order to make the system credible.

Former president Soeharto had been tempted to reintroduce a fixed exchange rate system under the currency board system, but was strongly opposed by the IMF.

However, reintroducing the fixed exchange rate system is now appealing, particularly to many Indonesian businesspeople as they envy their Malaysian counterparts who do not have to spend a lot of time and energy negotiating with foreigners for asset sale to repay debts after the country employed a currency control.

IMF officials have quietly applauded Malaysia's system. (rei)