Government urged to go all-out to stabilize rupiah

JAKARTA (JP): Legislators and business leaders urged the government yesterday to go all out in stabilizing the rupiah's exchange rate at Rp 4,000 to the U.S. dollar this year to help Indonesia's ailing economy.

They were commenting on the government's 1998/1999 draft state budget unveiled Tuesday which was based on an average exchange rate of Rp 4,000 to the dollar between April 1998 and March 1999.

"The government's goal to return the rupiah to Rp 4,000 against the dollar should be given top priority," the chairman of the United Development Party faction in the House of Representatives, Hamzah Haz, said.

Soeharto said in his speech Tuesday night the government did not want to see the rupiah too strong, thus weakening the country's export competitiveness.

Neither did the government want to let the value of the rupiah become too weak, he said, as it would burden the country's economy.

The rupiah further plunged to over Rp 8,000 to the dollar yesterday.

Hamzah said the 1998/1999 budget was the most difficult one in the past 30 years.

Legislators I Ketut Arcana and Eky Syachrudin said the government's decision to assume an exchange rate of Rp 4,000 for next fiscal year was a political move to restore market confidence.

"The government must have its own rationale to use the exchange rate at that level," Eky, a member of the Golkar faction at the House, said Tuesday.

"I think it's the President's political move. The rupiah must be strengthened to that level again, as Pak Harto's authority is at stake," he said.

Arcana, the chairman of House Commission VIII for state budget and finance, called the decision a bold and commendable move.

Arcana said the target's realization, however, would depend on the government's consistency in restoring confidence in the rupiah.

Some economists saw the exchange rate projection as unrealistic and highly optimistic.

Gadjah Mada University economist Arief Ramelan Karseno said yesterday the targeted rate of Rp 4,000 would be very hard to realize.

"When President Soeharto delivered the draft budget, the rupiah's value had sunk to Rp 7,900 to the dollar," he said.

He said many sectors in the Indonesian economy would be disrupted if the target was not reached.

If the rupiah continues to remain below Rp 4,000 to the dollar, many companies could collapse under their foreign debts, causing more people to lose their jobs and slashing government revenue from taxes.

University of Indonesia economist Anwar Nasution said the rupiah would not strengthen unless effective and comprehensive economic reforms were carried out.

Anwar said the rupiah would strengthen if people's confidence in the government's measures and policies returned.

"The rupiah's value will continue to decline if the government does not give a clear indication that it is really serious about restructuring the banking system and that it is helping to cope with the problem of huge bad loans," Anwar was quoted by Antara as saying.

Business leaders reacted more positively to the government's target of stabilizing the rupiah at Rp 4,000.

Noted businessmen Tanri Abeng and Sudwikatmono said the exchange rate target was realistic and optimistic.

Tanri, president of Bakrie & Brothers, said the exchange rate was reasonable compared to the current exchange rate.

"What is not realistic is the current exchange rate, because it is the result of excessive speculation," Tanri added.

PT Indocement president Sudwikatmono and hotelier Sukamdani Sahid Gitosardjono said the Rp 4,000 rate could be used for business transactions and for paying expatriate employees.

Tanri Abeng said the government should convince the market that it would balance the supply and demand of dollars here.

This could be achieved by helping the private sector rollover their maturing short-term loans, Tanri added. (das)