Govt undecided on CBS implementation: Mar'ie

Govt undecided on CBS implementation: Mar'ie

JAKARTA (JP): The timing on when Indonesia would implement its
plans to peg the battered rupiah to a single foreign currency
through a currency board system (CBS) depended on President
Soeharto, Minister of Finance Mar'ie Muhammad said yesterday.

"Let's just wait for his decision... Honestly, I don't know
when," Mar'ie said in reply to questions from the House of
Representatives regarding the timetable for the CBS plan.

He added that the President had only instructed his ministry
and Bank Indonesia, the central bank, to make preparations for
CBS operations so that it would be a credible system when
installed.

"Up to this moment, we have not received any other
instructions," he said.

Mar'ie stressed, however, that during the preparation period
the President would thoroughly consider all developments and
opinions concerning the currency board plan.

Indonesia will always maintain its good relationships with
various international institutions including the International
Monetary Fund (IMF), he added.

He pointed out that the government was in contact with senior
IMF advisor P.R. Naverkar, the IMF liaison officer in Indonesia,
over the implementation of IMF-sponsored reform programs agreed
upon in January as a condition to US$43 billion in bailout funds.

"The preparations (for the currency board plan) include
consultations with the international institutions, including the
IMF," he said.

A CBS is a monetary regime based on an explicit legislative
commitment to exchange domestic currency for a specified foreign
currency at a fixed exchange rate.

The government is trying to stabilize the rupiah following a
70 percent drop in its value against the dollar from 2,450 in
July to about 9,000 at present.

The CBS plan has raised concerns that Indonesia may not be
committed to the IMF reform programs. The IMF has threatened to
cut off its rescue funds to the country if it proceeds with the
plan.

Major donor countries to Indonesia in the Group of Seven
industrialized countries also reaffirmed their opposition over
the weekend to an introduction of the CBS at this point in time.

Despite the merits of the CBS, Mar'ie said, Indonesia must
first meet several conditions before implementing the fixed peg
plan.

He explained that under a currency board, Bank Indonesia would
no longer be able to guarantee commercial banks.

The guarantee on rupiah and foreign exchange claims on
domestic banks was enacted last month in a move to boost public
confidence in the sector.

"We are trying to find other alternatives to replace the
guarantee scheme," Mar'ie said.

The minister said the settlement of the country's corporate
foreign debts, estimated at $74 billion, would be another
prerequisite before a currency board could be established.

He expressed concern that if corporate debts could not be
settled through rollovers or rescheduling, there might be massive
market competition for dollars immediately after a currency board
was installed.

He added: "The success of the CBS also depends on domestic and
international support."

Mar'ie stressed that although a currency board would not allow
the central bank to make bridging financing commitments, all
commitments made before the implementation of a CBS should be
honored, including the decision to reimburse all depositors of
the 16 banks closed by the government in November. (08)