Jakarta on right track

Jakarta on right track

The Indonesian central bank raised its benchmark interest rate by another half-percentage point yesterday, to 10 percent. This followed the daring hike of three-quarters of a point on Aug. 30 in defense of the weakening rupiah brought on by rising oil bills. The stock index rose accordingly by 1.5 percent yesterday, although the rupiah was little changed at about 10,300 to the U.S. dollar.

Still, this was a marginal improvement over a week ago when it traded at 11,750, the lowest point in four years. Little incremental improvements are not to be made light of when doomsayers and speculators with an eye on the main chance are looking for cracks in the dyke.

Analysts are saying a benchmark range of between 11 and 13 percent would calm markets and control inflation. The obverse effect of crimping business lending and macro growth is a parallel worry, but showing determination to defend the rupiah is most urgent just now. Indonesia is doing the right things, and with dispatch.

The leaders of Singapore, the country most sensitive to rumblings next door, have been impressed by President Susilo Bambang Yudhoyono's prescription to maintain fiscal consolidation.

In this context, endorsement for Bank Indonesia's 'clear and transparent monetary policy' from the head of the International Monetary Fund, Mr Rodrigo de Rato, should command attention. His saying the economy was on 'a very strong footing' authenticated the view about Indonesia's fundamentals being sound. Asian Development Bank president Haruhiko Kuroda has also praised Jakarta for its fiscal discipline. But only Yudhoyono can carry through his plan of weaning Indonesians off cheap fuel in exchange for affordable social support. This calls for skill, tact and timing. -- The Straits Times, Singapore