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)