Fixing the rupiah with IMF aid

Fixing the rupiah with IMF aid

Deciding whether or not to adopt a currency board system is
not easy. It has been difficult to align the proposed system with
the stance of the International Monetary Fund (IMF), which
insists that Indonesia first carry out the 50 points of economic
and monetary reform to which it has agreed.

The IMFs position has been strengthened by support given to it
by the G-7 group of industrialized countries, who last week said
that Indonesia is not yet ready for a currency board. The G-7
countries are the largest donors to the US$43 billion aid package
designed to lift Indonesia out of the doldrums.

Amid intense debate, some observers in Jakarta have said that
the position taken by the IMF and the G-7 is negotiable and that
in principle, a currency board system would not breach the
agreement reached between Indonesia and the IMF. Some have also
wondered at potential motives that lie behind the divergent array
of opinions on the currency board plan.

A strong body of thought believes that the government should
immediately set the rupiah to a fixed rate, without waiting for
any final decision on a CBS. Any sort of stability in the
exchange rate will send welcome signals to the market and assist
the business community plan ahead. A "dirty float" policy, where
the government intervenes to influence foreign currency supply
and demand, would be compatible with the IMFs position and is the
only system that will ensure that the rupiah is valued at a
realistic rate.

As we see it, the main target is to stabilize the exchange
rate and to ensure that the program of economic reform proceeds.
In our opinion, IMF assistance is essential in our efforts to set
the economy to right. To this end the views offered above provide
a way by which compromise with the IMF and G-7 could be reached,
allowing the more serious business to proceed.

-- Suara Pembaruan, Jakarta