Indonesia not seeking new funds, says Sjahril
Indonesia not seeking new funds, says Sjahril
WASHINGTON (Dow Jones): Indonesia isn't seeking fresh funding from the international community even though it faces a "significant" blowout in the costs of restructuring its devastated banking sector, the head of the country's central bank said Wednesday.
In a wide-ranging interview, Bank Indonesia Governor Sjahril Sabirin said his meetings with U.S. and International Monetary Fund officials during the IMF's spring meetings this past week were simply "courtesy calls," during which he apprised officials of recent developments in Indonesia.
The governor said, however, that Indonesia may need to seek more than the US$43 billion already pledged by international lenders, if it's hit with large-scale capital flight in the lead- up to the potentially violent June general elections.
One reason for government concern is the mounting cost of a program to recapitalize the country's banks.
Some analysts say the costs could swell to Rp 500 trillion ($58 billion), far in excess of the government's official Rp 300 trillion estimate.
Sjahril acknowledged that the official number, drawn up in December, now appears overly optimistic.
"We don't have the latest figures as yet, but we have to work on the basis of a minimum 4 percent capital adequacy ratio, and, at the present time, we think that the total number will be significantly higher," he said.
Sjahril hopes this gap in cost estimates can be filled by the private sector, citing the recent sale of an equity stake in Bank Bali to UK bank Standard Chartered as a sign of renewed foreign interest in Indonesian banks. But if private funds prove insufficient, "then the government can jump in," he said.
Sjahril doesn't believe the government needs more foreign assistance to finance whatever enlarged role it would play in the recapitalization process.
He did, however, offer an important proviso.
More international assistance isn't needed "as far as I can tell right now, but the developments in the coming weeks might make it different," he said, referring to the forthcoming elections.
These will be the first truly multi-party elections in Indonesia for almost four decades. If the public perceives they've been rigged, many fear a nationwide outbreak of the kind of violence that rocked the capital, Jakarta, in May last year.
Those riots brought an end to President Soeharto's 30-year rule and was accompanied by a plunge in Indonesia's currency, the rupiah.
Encouraged by the rupiah's recent relative stability in the face of ongoing ethnic and religious conflict across the Indonesian archipelago, Sjahril is hopeful the currency market can ride out the elections unscathed. If the rupiah does come under excessive pressure, however, the central bank would be ready to defend it, he said.
"We should be prepared to (intervene), although I don't expect that there will be events that require us to do so," Sjahril said.
He said that although the government has set Rp 7,500 as the preferred rate to the dollar, the bank is not actively targeting any level.
Investor confidence
Sjahril bases his optimism on some "promising" signs of improved foreign investor confidence.
In addition to the Bank Bali sale, he cited a recent debt restructuring deal hammered out between government-owned investment bank PT Persero Danareksa and its creditors, and the positive foreign reception given to an Indonesian Supreme Court decision declaring PT Dharmala Agrifood bankrupt last week.
Those cases are among the first to conclude among hundreds in which creditors are seeking to recover loans that were effectively frozen during last year's financial crisis.
Sjahril said he believes the latest developments are a sign that Indonesia is about to share in some of the inflows of capital currently seen in other crisis-hit Asian markets.
"Some investors have been waiting for the results of the general elections, but some of them are seeing that this is the right moment to come in," he said.
All the same, Indonesia isn't yet ready to follow the current rush to international debt markets by other developing nations, although the government would consider issuing Eurobonds if the elections pass smoothly and if sufficient confidence returns to Indonesia's money markets.
The governor argued that steps taken under the IMF's guidance to improve transparency and economic planning will boost Indonesia's standing among foreign investors.
Among these, he cited a recently passed foreign exchange monitoring law and another law intended to guarantee Bank Indonesia's independence from the executive branch of government.
Sjahril stressed that the monitoring law would be used solely for economic planning purposes and not to facilitate tighter controls over currency movements. Its aim is to help the central bank more accurately calculate monetary indicators by which it sets interest rate policy, he said.
As to the central bank's independence legislation, which has been passed by the Indonesian parliament, Sjahril expects President B.J. Habibie to sign it into law in a "week or two."
The new law would separate Bank Indonesia's budget from governmental control and set four-year terms for a governor to be appointed by a new governing board of central bank directors. It allows for an interim transition period under which the current governor is automatically appointed for the first term.
Sjahril said he will take on this newly independent position, "unless President Habibie dismisses me before he signs" the bill.