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)