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