Govt to seek IMF help to boost rupiah

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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