Govt, BI forecast rupiah stable at 7,000 to dollar

JAKARTA (JP): The country's senior economics minister and Bank Indonesia said on Monday they expected the rupiah to remain stable at around 7,000 to the U.S. dollar due to stabilization of the political and security situation.

Speaking after meeting President Abdurrahman Wahid at Bina Graha presidential office, Coordinating Minister for the Economy, Finance and Industry Kwik Kian Gie said the rupiah should remain stable despite unrest in Maluku and Aceh.

"I think that's (stabilization of the rupiah) because our social and political situation in general has been stable, except in Aceh and Ambon. But for business centers like in Jakarta, that's not perceivable," he said.

Bank Indonesia governor Sjahril Sabirin said separately that strife in outlying provinces of the archipelago should not affect the central government and the rupiah.

"What really is happening is in the regions like in Ambon and Aceh and not so much at the national level," Sjahril was quoted by Dow Jones as saying in Singapore, referring to the Maluku capital.

The central bank governor predicted that the rupiah should not weaken below the level of 7,000 to the dollar merely because of unrest in the provinces.

The stabilization of the rupiah, Kwik said, was also a normal consequence of the recovery process of the economy from the devastating crisis.

The crisis struck in July 1997 and deepened in 1998 when the gross domestic product dropped 13 percent, inflation soared 78 percent and the rupiah hit an all-time low of 17,000 to the greenback.

Kwik said a crisis of such magnitude would not be repeated.

"When we were in the crisis, the damage was severe. And therefore, it (the rupiah) should be stable at this level. If there are fluctuations, it will not be worse than that. That's not because of the government's performance, but a natural process."

Kwik said recent fluctuations in the rupiah were not unusual and attributed them to the "market economy system".

"If we adopt the market economy system, there will always be fluctuations of the currency," he said.

The rupiah, which was trading at 7,150 to the dollar around midday Monday, weakened to around 7,270 last week in line with the fall of the yen against the dollar as well as rumors of a Cabinet reshuffle.

The announcement of damning audit results on Bank Indonesia by the Supreme Audit Agency, in which the agency issued a "no opinion" or "disclaimer" label, did not really affect the rupiah in the market, Kwik said, because the market discounted the situation.

"BI's case did not have any impact (on the rupiah), because all damaging acts (in the central bank) happened in the past, and we are experiencing all of its impacts now, in all our daily lives."

Kwik said Bank Indonesia's argument that releasing the results of the audit would have a damaging effect on the market and on Indonesia's political risk level was proved baseless.

Kwik also said the government was in agreement with the International Monetary Fund (IMF) over efforts to reform Bank Indonesia, following the announcement of the audit results, as the fund knew of problems at the central bank from the outset.

Kwik said the government would sign a new letter of intent with the IMF on Jan. 20, the day when the government will present its state budget draft to the House of Representatives.

"Everything has been settled with the IMF, but the IMF wants to see developments from now through Jan. 20," he said. "These 10 days will be very critical, so we must work hard (to maintain stability)."

The IMF, arranger of an international multibillion dollar bailout for Indonesia, suspended loans to Indonesia last September due to the high-profile Bank Bali scandal that tainted the previous government. The fund has said it would resume loans after a new letter of intent is signed and released.