IMF, govt ease base money target

IMF, govt ease base money target

The Jakarta Post, Jakarta

The International Monetary Fund (IMF) and the government
agreed on targeting next year a base money growth of between 12
percent to 14 percent, easing down from this year's growth target
of 12.5 percent.

Finance Minister Boediono said on Wednesday the new growth
target was added to the draft of the fourth Letter of Intent
(LoI) with the IMF.

"We will lower the base money supply, I think growth is set at
between 12 percent to 14 percent," he told reporters.

The higher growth range reflects cautious optimism that
pressure on the rupiah and inflation may fall next year.

It also lends hope that Bank Indonesia will lower its interest
rates, a long awaited move by industries stifled with high
lending rates.

Interest rates have been set tight to absorb liquidity in base
money supply that otherwise could be used to speculate against
the rupiah or stoke inflation.

Base money measures the stock of money in an economy including
cash and deposits in savings and checking accounts. Too much
money in relation to the output of goods tends to push interest
rate down.

There has been growing calls for Bank Indonesia to lower
domestic interest rate to help push economic growth and to ease
the state budget burden in covering the coupon rate of government
bonds.

The government and the IMF visiting mission agreed on Tuesday
on a draft of the country's fourth LoI, which outlines the
government economic targets and reform programs for next year.
The draft of the LoI has yet to be unveiled to the public.

The government has projected economic growth of 4 percent next
year, compared to this year's estimate of 3.5 percent; and
inflation rate of 9 percent, compared to around 11 percent
expected for this year.

Bank Indonesia Deputy Governor Miranda Goeltom said base money
supply as of October had reached Rp 117.4 trillion (some US$11.25
billion). The central bank has targeted Rp 111 trillion.

Miranda predicted base money growth may hit 17.8 percent for
the whole of this year, also far above its 12.5 percent target.

Elsewhere, Bank Indonesia one month promissory notes (SBI)
ended flat at 17.59 percent from last week's rate at 17.58
percent.

Rates have been hovering at these levels for the past six
weeks, as Bank Indonesia tries to absorb liquidity in the money
market.

Other targets in the LoI draft included the revision of local
regulations, the IMF deemed as hurting regional economies.

Director General for Fiscal Decentralization Machfud Sidik
said the IMF identified some 100 local regulations that were in
violation of the regional autonomy laws.

"Since regional autonomy came in to effect, businessmen have
begun to complain about the surge of regulations impeding their
investments," he was quoted as saying by Kompas.