Indonesia, IMF reach reasonable conclusion: Neiss

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)