Govt to seek IMF help to boost rupiah

JAKARTA (JP): President Soeharto decided yesterday to look for long-term support funding from international agencies, including the International Monetary Fund (IMF), to help regain market confidence in the rupiah and Indonesia's economy.

The President instructed Minister of Finance Mar'ie Muhammad and Bank Indonesia governor J. Soedradjad Djiwandono to implement the decision.

"While Indonesia's foreign exchange reserves remain at a safe level... the government is sounding out long-term support funds from international institutions, including the IMF," Mar'ie said in a statement after the cabinet meeting.

But Mar'ie said the government had not yet decided the amount needed.

He said the government had already conducted intensive consultations with the IMF and World Bank on issues ranging from the currency crisis to the restructuring of the financial sector.

But he reiterated that the move was only precautionary to back up existing foreign exchange reserves and the government would not draw on the fund unless it was really necessary.

"These long-term funds would only serve as a backup. In addition, we still have standby loans. So, we have a layer of backup as part of our prudent economic policy," Mar'ie said.

Soedradjad added that foreign exchange reserves managed by the central bank stood at US$20.52 billion, enough to finance about five months of imports.

In addition, the government had standby loan commitments from various international financial institutions, totaling $2 billion.

"So far, we haven't used that facility. It is still left untouched," Soedradjad said.

He acknowledged that the central bank had intervened several times in the currency market to prevent a further decline in the rupiah. But the amount of intervention was kept to a minimum.

"The government, in this case the monetary authority, intervened in the foreign exchange market to slow down the rupiah's depreciation and prevent panic from spreading," Soedradjad said.

He said it was the government's responsibility to avoid excessive exchange rate volatility and depreciation of the rupiah.

The rupiah, along with other regional currencies, has been under speculative attack since the devaluation of the Thai baht in July. Since then, the rupiah has lost some 35 percent of its value.

The rupiah touched a historic low of 3,850 against the U.S. dollar on Monday, forcing the central bank to step in. Due to the intervention, the rupiah strengthened to 3,680 on Tuesday and 3,665 yesterday.

The rupiah has suffered the most among regional currencies, depreciating by 33 percent since July 1. In the same period, the Thai baht depreciated by 29 percent, the Philippine peso by 26 percent and the Malaysian ringgit by 21 percent.

Soedradjad said the recent sharp depreciation of the rupiah did not reflect Indonesia's economic fundamentals and it only spread panic among the people.

"If the rupiah's depreciation is a correction by the market, the correction has already overshot its target," Soedradjad said.

An excessive dollar demand and shrinking supply in the currency market had driven down the rate for the rupiah, Soedradjad said.

Therefore, he added, the government was trying to reduce the dollar demand by asking corporations that had dollar debts not to enter the market simultaneously.

"But the government will not bail out these private debts," Soedradjad said.

At the same time, the government was trying to improve the dollar supply by opening swap facilities to exporters to encourage them to release their dollar holdings.

In addition, the government would continue to make structural adjustments needed to enhance the efficiency and competitiveness of the Indonesian economy to encourage foreign funds to reenter Indonesia.

The government also pledged to strictly enforce a recent presidential decree that postponed or reviewed US$38.3 billion worth of projects of the government and state-owned firms and rescheduled private sector projects.

Soeharto instructed his ministers to safeguard stocks of essential goods and strive to maintain price stability.

The President appointed a government economic advisor, Widjojo Nitisastro, to coordinate with institutions to implement the policy.

Despite the drastic fall of the rupiah, Mar'ie said the government pledged to consistently implement the free foreign exchange regime.

"The government will nevertheless continue to make an all-out effort to avoid excessive exchange rate volatility and depreciation," Mar'ie said. (prb/rid)

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