Government has no special plans to boost rupiah

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)