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.