IMF urged to take active role in currency crisis

IMF urged to take active role in currency crisis

HONG KONG (JP): Indonesian Minister of Finance Mar'ie Muhammad
warned yesterday that the currency crisis sweeping Southeast Asia
could lead to an economic crisis.

In a speech to the annual meetings of the World Bank and the
International Monetary Fund (IMF) here, Mar'ie urged the fund to
play an active role in preventing such crises.

"Although we are in favor of market mechanism, we are
concerned about the excessive volatility of many currencies which
undoubtedly creates uncertainties in the business community and
could lead to an economic crisis," he said.

"In this regard, I urge the IMF to take an active role
according to its mandate," he said.

Southeast Asian currencies have sharply fallen since Thailand
effectively devalued the baht on July 2 due to its financial
problems arising from a high current account deficit and bad
loans in the banking sector.

Among the hardest hit are the Philippine peso, the Malaysian
ringgit and the Indonesian rupiah.

"Since excessive volatility of currencies can hinder the world
economy, we warmly welcome any regional or global initiative to
stabilize currencies," Mar'ie said.

Over the last two to three years, Mar'ie said, Southeast Asian
economies were marked by high economic growth with signs of
economic overheating; enlarged current account deficits
accompanied by inflationary pressures; growing short-term private
borrowings and the construction of huge projects that were beyond
the limits of their national economic capacity.

Mar'ie said that countries in the region had recently
addressed those problems through structural adjustments.

"As a result, there are positive indications that the
currencies are in the process of arriving at a new equilibrium in
the near future," he said.

In his speech, he outlined four measures Indonesia was taking
to cope with the currency turmoil.

The measures included floating the rupiah in mid-August
accompanied by tightening liquidity and interest rates, trimming
the state development budget by 8.4 percent and abolishing
subsidies, and boosting exports while limiting imports, he said.

Despite belt-tightening measures, Mar'ie said Indonesia
"reaffirms its commitment to discharge all of its financial
obligations fully and timely".

The government will continue to take efforts to repay its
foreign debt ahead of schedule using proceeds from the
privatization of state-owned firms.

Mar'ie said the government had also shelved US$35 billion
worth of government and private state-related projects financed
through borrowings and external credits.

"It is the government's opinion that a number of private
megaprojects does not reflect the national priority, therefore
they can be postponed," he said.

The objective of those measures, he said, was to lower the
current account deficit, which was now at about 3.8 percent of
gross domestic product to a maximum of 3.0 percent within the
next two years.

In addition, the government should take action to strengthen
the financial sector in cooperation with the World Bank and the
IMF.

Following the market-friendly measures, the rupiah has now
reached "a relatively stable exchange rate" ranging from 2,900 to
2,950 against the US dollar, depreciating by about 24 percent
since January, he said.

"This relative stability is partly a result of the market's
positive reaction toward the market-friendly measures taken by
the government," he said.

"Fortunately, this result was achieved without sacrificing our
foreign exchange reserves," he added. (vin/rid)