Indonesia, IMF reach reasonable conclusion: Neiss
JAKARTA (JP): Indonesia and the International Monetary Fund (IMF) have come to a reasonable conclusion in reviewing the country's monetary policy, the IMF Asia Pacific director Hubert Neiss said yesterday.
Neiss declined to give details, saying that overall discussions have not yet finished.
However, a government official who attended the meeting indicated that a strict, high interest rate regime would be used to stabilize the ailing rupiah.
"We want to do a good job. We want to make sure all areas under review are completely covered," Neiss told reporters following a meeting to discuss monetary policy with senior Bank Indonesia officials.
"We want to conclude in a perfect way. It's only a matter of days," he added.
The central bank's director Miranda Gultom said that banking reforms were discussed in addition to interest rate measures during yesterday's meeting. She declined to give further explanation.
Neiss has been in Jakarta for more than two weeks reviewing Indonesia's economic reform program, which has been subdivided into five key areas -- monetary policy, banking reform, budget and subsidies, structural reform, and private sector overseas debt.
The results of the discussions will be critical in determining whether Indonesia will continue to receive over US$40 billion in assistance from the IMF. IMF Deputy Managing Director Stanley Fischer is expected to arrive in the capital Thursday evening.
A senior government official who declined to be named said the monetary policy review focused on ways to stabilize the rupiah, which has fallen drastically in value since last July, touching Rp 17,000 to the U.S. dollar in January, compared to the pre- crisis level of Rp 2,450.
He explained that Indonesia would limit the base money supply and credit expansion through high interest rates in order to bolster the rupiah.
"We have to take these difficult steps", he said, adding that high interest rates would be a temporary measure until the rupiah stabilized.
"Volatility in the exchange rates have placed everybody in a very difficult situation," he said.
He explained that countries which had persistently held interest rates high had recovered from the crisis with relative speed.
"In the past we've been inconsistent with our interest rate policy," he said, stressing that the business community must now accept the strategy agreed with the IMF.
The central bank recently raised rates on short-term promissory notes (SBIs) to as high as 45 percent per annum in an effort to curb inflation and stabilize the rupiah. The move was endorsed by the IMF.
This step was followed by commercial banks, which raised one- month deposit rates to over 67 percent.
The central bank subsequently restricted the maximum rate by which commercial banks can exceed its guiding SBI rates to 25 percent.
Commercial banks have now entered into an informal agreement to limit interest rates to a maximum of 47.5 percent.
"Even 47.5 percent is still too high for us, but we must strive to support government efforts to absorb public funds," Widigdo Sukarman, chairman of the state banks association, said. (08)