House demands concrete measures to stabilize rupiah

House demands concrete measures to stabilize rupiah

JAKARTA (JP): The House of Representatives demanded the
government come up with concrete measures to help strengthen the
embattled rupiah in its proposals to revise the 2001 state
budget.

Head of House commission IX for financial and development
planning affairs Benny Pasaribu said late on Thursday that the
government must also talk with Bank Indonesia to arrive at a
joint effort to help stabilize the local currency.

"What we really want to see is the kind of policy that will
bring the rupiah from the current level (Rp 12,100 per US dollar)
to the Rp 9,600 level," Benny told a media conference following a
more than two hour closed door meeting between Finance Minister
Prijadi Praptosuhardjo and House leaders.

"It's useless (to make the budget revision) if it is not
accompanied by concrete measures to achieve the new (budget)
assumptions ... Without any concrete measures, I'm afraid the
debate (on the revision) will be needlessly long," he added.

He also said that the legislature questioned the effectiveness
of the central bank high interest rate policy in defending the
rupiah, a much-criticized policy prescribed by the International
Monetary Fund.

"Is the tight monetary policy the right prescription? Won't
the real sector be screaming if the average interest rate of the
SBI (Bank Indonesia promissory notes) for the year is set at 15
percent? We discussed this (issue) for quite a long time at the
meeting," Benny said.

"The tight monetary policy is becoming costlier to implement
in this country," he added, pointing out that the high interest
rate policy would increase the burden on the state budget and
hamper the banking sector's ability to resume lending, both of
which, in turn, would only make the people suffer more.

The government is planning to revise the current 2001 state
budget due to the weakening of the rupiah and rising interest
rate.

The revision will include a new exchange rate assumption of Rp
9,600 per dollar, SBI rate of 15 percent, and inflation rate of
9.3 percent. This is in sharp comparison with the current
assumptions of Rp 7,200 per dollar, SBI rate of 11.5 percent, and
inflation rate of 7.2 percent.

The rupiah plunged to Rp 12,100 per dollar late on Thursday,
while the SBI rate has now jumped to around 16 percent.

The government also plans to maintain the budget deficit at
3.7 percent of gross domestic product (GDP), as initially
projected, despite the worsening macroeconomic picture, basically
by increasing domestic revenue and reducing spending.

Prijadi said that the government expects to be able to
complete the budget revision proposal early next month, and to
submit it to the legislature for debate in the first week of the
month.

"We expect the government and the House to reach a final
agreement by the end of May," Prijadi said.

Prijadi said that the government would work hard to come up
with the concrete measures to help stabilize the rupiah as
demanded by the legislature, including talking to Bank Indonesia.

"We'll invite Bank Indonesia to give its input, so that this
will be a more integrated (revision) proposal," he said.

The visiting IMF special mission recently said that it would
only make a new agreement with the government after the
legislature had already approved the revision of the current
state budget.

A new agreement with the IMF would pave the way for the
disbursement of the Fund's next US$400 million loan tranche to
the country.

But Benny's statement about the House demanding the government
make new concrete measures to lift the rupiah and questioning the
central bank interest rate policy could raise speculation that
the government might be forced to abandon the IMF program. The
program has long been criticized by many, including certain top
government officials.

There has been a suggestion that Indonesia adopt a Malaysian-
style currency peg measure to stabilize the rupiah, a policy
which is completely at odds with the IMF program. (rei)