Indonesia to keep monetary policy relatively tight

Indonesia to keep monetary policy relatively tight

TOKYO (Reuters): Bank Indonesia will maintain a relatively tight monetary policy until pressures on the rupiah and inflation diminish, the central bank's managing director Achjar Iljas said here yesterday.

"I think for the time being and for the immediate future, I think we will have to maintain a relatively tight monetary policy," Iljas told Reuters Television in an interview.

"We will maintain that until we believe pressure on the rupiah and pressure on inflation diminish," he added.

Iljas said a resumption of loans from the International Monetary Fund (IMF) and other international institutions would help Indonesia stabilize its economy.

"Our first priority is to provide basic necessities for the population. With the help of these funds, we can purchase rice and other essential commodities. It will help us mitigate the pressure on the majority of the population," Iljas said.

IMF loans to Indonesia were suspended in May amid political and economic turmoil in the country before and after the resignation of former president Soeharto.

In June, Indonesia signed a fresh accord with the IMF, which said an additional $4 billion to $6 billion would be needed on top of a $41.2 billion rescue package already in place.

IMF Asia-Pacific Director Hubert Neiss said in a statement released in Jakarta on Saturday that the IMF executive board would meet on Wednesday for a review of Indonesia's economic progress which is expected to pave the way for a resumption of the loan.

As for the task of the central bank, Iljas said the bank will try hard to control inflation and also the pressure upon the rupiah.

Iljas also said the agreement reached between the Indonesian debt negotiation team and creditor banks last month on a program to solve the country's private-sector debt problems and better weather conditions for rice production will help ease pressure on the economy and the rupiah.

Asked whether the central bank has a particular level in mind about the rupiah, Iljas said, "We believe that in the coming months the rupiah will strengthen, but it is of course very difficult to predict to what level. We hope it will appreciate significantly from the present level."

Iljas said the Indonesian Debt Restructuring Agency (INDRA) program and other existing programs will help solve the problems of Indonesian firms' non-performing loans.

The agreement to create INDRA was reached between the Indonesian debt negotiators and creditor banks in Frankfurt last month.

INDRA, fully backed by the Indonesian government and administered by Bank Indonesia, provides exchange risk protection and assurance as to the availability of foreign exchange to private debtors that agree with their creditors to restructure their external debt.