Sat, 08 Jul 2000

Government has no special plans to boost rupiah

JAKARTA (JP): Coordinating Minister for the Economy, Finance and Industry Kwik Kian Gie said here on Friday that neither the government nor Bank Indonesia would take any special measures to shore up the ailing rupiah.

Kwik said that the current weakness was only temporary and he believed the rupiah would strengthen once political uncertainty subsided either before or after the upcoming August special session of the People's Consultative Assembly (MPR), the country's highest legislative body.

"The government and Bank Indonesia will not take (special) action because all of the economic indicators are satisfactory. If we take action, it will only cause the market to think that there's something serious going on," he told a media briefing following a meeting with Finance Minister Bambang Sudibyo and Bank Indonesia senior officials.

Kwik also held a meeting with several players in the currency markets earlier in the day.

"We're convinced that the current weakness in the rupiah is only temporary. That's why we won't take any action. We won't intervene or change the exchange rate system," he said.

The government and Bank Indonesia officials have repeatedly said that the weakening in the currency had been largely due to non-economic factors as key economic indicators have largely improved.

The rupiah has been under strong pressure lately due to domestic political uncertainty in the run up to the MPR's forthcoming session.

President Abdurrahman Wahid is scheduled to deliver a statement of accountability for his one year administration at the MPR's annual meeting. The country's political temperature has heated up in the approach to the August meeting amid signs of a possible impeachment attempt against the President. But top legislators have said that no such attempt is in the offing.

The rupiah closed steady at Rp 9,305 against the U.S. dollar on Thursday, almost unchanged from the previous day's close of Rp 9,310.

Currency traders said that the Indonesian currency fell to a range of between Rp 9,320 and Rp 9,350 in midday trading before recovering to Rp 9,305 in late trading.

The current exchange rate level is much lower than the government target for this year of Rp 7,000 per dollar.

Dealers attributed the late increase in the rupiah to intervention by the central bank, which they said, sold about $20 million in the afternoon session through state banks in a bid to shore up the ailing currency.

Kwik was also convinced that the rupiah would not drop to below Rp 10,000 because market players are now more confident about the outcome of August's assembly session.

"I doubt if the rupiah will fall to below the Rp 10,000 level (in the run up to August) because the market players now think that there's more certainty about the outcome of the assembly session," he said.

Kwik also said that the current weakness in the rupiah had so far not had a serious impact on the country's manufacturing sector because firms had imported raw materials when the rupiah was still at around Rp 7,000 per dollar last seen in February.

Separately, Bambang said that the rupiah remained very sensitive to the political atmosphere as the currency markets were still not mature enough in coming to terms with the changes taking place during the country's political transition to a democratic nation.

Bambang said that the MPR general session should not be a worry as it was being held in accordance with the constitution. He also said that strong criticism of the President by the House of Representatives should not give rise to jitters because this was a normal part of democracy.

Bambang was convinced that the currency markets would gradually adapt to the new situation, and that the rupiah would strengthen.

"We hope the rupiah will firm up soon ... because I'm sure there will be a satisfactory resolution (to the current political conflict)," he said.

Bambang added that if the rupiah continued to weaken, it would undoubtedly hamper the country's overall economic recovery efforts.

Experts have said that the weakening in the rupiah as well as the inevitable increase in domestic interest rates would inflate the cost of the country's bank recapitalization program, and hamper the crucial process of corporate debt restructuring. (rei)