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

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)