IMF-RI row `does not hurt rupiah but blocks upsurge'

JAKARTA (JP): Bank Indonesia deputy governor Miranda Goeltom said on Friday that the current standoff between the government and the International Monetary Fund (IMF) had not impacted on the rupiah, but admitted that it had become a factor in blocking the rupiah's upside potential.

Miranda said that other factors, including the ongoing political and social unrest, were also affecting the exchange rate of the rupiah.

"Until now, we have not seen the rupiah falling drastically, but if we see it from the side of a possible strengthening in the rupiah, which has not materialized, then we can say there's an effect," she told reporters.

"But it is not only due to the issue of relations with the IMF, there are also other factors ... There are still too many uncertainties," she added.

Miranda said that the social and political factors could further hurt the rupiah.

The rupiah continued its recent fall late on Friday due to a combination of corporate demand for dollars to repay overseas debt and ongoing ethnic clashes in Sampit, Central Kalimantan, which have claimed at least 143 lives.

The rupiah ended trading at Rp 9,685 per U.S. dollar from Rp 9,630 late on Thursday.

State banks failed to defend the rupiah, dealers said.

State banks had sold dollars around Rp 9,660 per dollar in the morning and around Rp 9,665 in the afternoon, Dow Jones newswires quoted dealers as saying.

The size of the sale, estimated to be around US$10 million to $20 million, wasn't big enough to counter the dollar's ascent, dealers said.

"The selling was well absorbed by the market," said a dealer at a European bank, adding that he expected more weakness in the rupiah.

Miranda also reiterated that the central bank's new foreign exchange policy launched in the middle of last month, which cut off rupiah transfers to offshore banks to help curb speculation against the currency, had helped in reducing the volatility of the rupiah amid the current political turbulence.

Relations between the government and the IMF have worsened since last year after the IMF delayed the disbursement of its scheduled $400 million loan tranche to Indonesia due to concerns over the government's proposed amendment of the central bank law, poorly-designed fiscal decentralization policies and delays in the divestment of government ownership in Bank Central Asia (BCA) and Bank Niaga.

Coordinating Minister for the Economy Rizal Ramli traveled to Washington earlier this week to meet with the IMF first deputy managing director Stanley Fischer to lobby the IMF to disburse its funds.

Disbursement of the IMF funds is seen as a crucial factor in reviving investor confidence, thus, affecting sentiment in the rupiah.

The most difficult issue causing the impasse between the government and the IMF is the government-proposed bill on the amendment of the central bank law.

The IMF has insisted that the amendment process could threaten the independence of Bank Indonesia, but the government has said that the amendment will improve the accountability of the central bank.

One of the controversial points in the proposed bill is the requirement for the current board of governors of Bank Indonesia to be automatically dismissed once the new bill has been approved by the legislature, raising concerns over the independence of Bank Indonesia.

Critics have earlier said that the proposed bill is only intended to accommodate President Abdurrahman Wahid's desire to dismiss Bank Indonesia governor Sjahril Sabirin and his deputies.

Another threat to the independence of Bank Indonesia is the proposal to allow the central bank to resume its function of lending money to the government. Sources say that this point also concerns the IMF.

The legislature is expected to resume debate of the new bill soon after Rizal returns from Washington on Monday. (rei)