Indonesia to stick to its plans despite strong rupiah

JAKARTA (JP): The International Monetary Fund's Asia Pacific director Hubert Neiss has said that Indonesia will not have to revise its economic reform program despite the strengthening of the rupiah.

"We should all be happy that the rupiah is much stronger," he told reporters following a meeting with key economic ministers including Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita and Bank Indonesia Governor Sjahril Sabirin.

He said the stronger rupiah reflected improving confidence in the country's economy.

Neiss, who arrived here on Wednesday for a monthly review of the government's economic reform program, said that this month's review would focus on bank and private sector overseas debt restructuring and the state budget.

He said the Indonesian government was expected to sign a new letter of intent this week before a further US$1 billion is disbursed from the IMF-brokered bailout fund for the country.

The agency has so far provided Indonesia with $6 billion from the bailout package.

The rupiah has strengthened in recent weeks, passing through the government's year-end target of Rp 10,600 to trade at between Rp 9,000 and Rp 8,000 against the dollar.

The rupiah, which last month was fluctuating between Rp 11,000 and Rp 12,000 against the dollar, made further gains on Thursday to close at Rp 8,700.

Neiss also said the IMF would support the Indonesian government's plan to improve monitoring of the flow of capital into and out off the country.

"The IMF doesn't mind if Indonesia improves monitoring of capital flows as it will improve the statistical data gathered by the government," Neiss said.

The Indonesian government has said it is preparing a mechanism which will improve monitoring of the flows of capital, but has insisted measures under consideration do not constitute a form of capital control similar to that recently adopted by Malaysia.

Speaking to reporters after meeting President B.J. Habibie late on Thursday, Neiss said the Indonesian government had assured him that restrictions will not be placed on the movement of capital.

"Indonesia has no intention of controlling its foreign exchange like Malaysia," he said.

Sjahril

Bank Indonesia Governor Sjahril Sabirin said on Thursday that the central bank had started to ease its tight monetary policy and would continue to lower interest rates if the rupiah continued to strengthen and inflation further declined.

"If inflation in October is very low and the exchange rate continues to improve, we will gradually begin to lower interest rates," he told the media following a seminar.

"I expect the October inflation rate to be zero," he added.

The benchmark interest rate for Bank Indonesia one-month promissory notes (SBI) is now slightly above 59 percent compared to more than 70 percent last month.

Analysts, however, said that despite recent cuts, interest rates here were still the highest in the region.

Sjahril said he expected the rupiah to continue to improve, provided the political situation remains stable.

He pointed out that in addition to the improving sentiment in regional currencies, confidence in the country was growing as the government's program of economic reform gained credibility.

He also stressed that there was no need for the government to replace the floating foreign exchange regime because a credible program of economic reform would strengthen the currency.

Improved monitoring of capital flows was still on the agenda, he said, adding that measures adopted would not constitute a form of capital control.

Neiss said the IMF would support the government's plan to improve the monitoring of foreign exchange flows, but issued a reminder that imposing capital controls would have a detrimental effect on confidence in the country.

"We will not impose capital controls because we had a bad experience with them in the 1970s," Sjahril said. (rei)