Fixed exchange rate system still an option: PDI-P

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)