Japan to help deal with currency woes
JAKARTA (JP): Japan's Vice Finance Minister for International Affairs Eisuke Sakakibara said here yesterday that the Japanese government was ready to help Indonesia cope with its currency crisis.
"The Japanese government stands solidly behind Indonesia... and is ready to extend bilateral financial or technical assistance to the country," Sakakibara said following a meeting with Bank Indonesia Governor J. Soedradjad Djiwandono.
Sakakibara said Japan would back any program endorsed by international organizations, including the International Monetary Fund (IMF), the World Bank (WB) and the Asian Development Bank (ADB) to help Indonesia recover from the currency turmoil.
IMF delegates and WB and ADB representatives are in Jakarta to discuss a financial aid package for Indonesia. The IMF-led team has not yet announced details of the aid package but analysts speculate that the assistance would include standby loans worth up to US$12 billion.
Sakakibara said the IMF-led mission would likely come up with some kind of a package, which might include technical assistance and "standby" financing facilities.
"The World Bank and the IMF have programs, such as structural adjustment loans," he said of the possible assistance from the two agencies.
Sakakibara, who also met members of the IMF-led team during his Indonesian visit, said the financing facilities could be used to restructure the Indonesian financial sector.
Speculative attacks, which also hit other Southeast Asian currencies, have caused the rupiah to lose over 35 percent of its value against the U.S. dollar since early July.
After a series of unsuccessful measures, the government announced last week it would seek help from the IMF and other international organizations to cope with the currency crisis.
The rupiah surged to 3,540/50 in the afternoon yesterday after trading above 3,700 earlier in the day. Currency dealers attributed the strengthening of the Indonesian currency to Sakakibara's comments on his government's readiness to help Indonesia.
Sakakibara said Indonesia had some structural issues that needed to be addressed immediately.
"The IMF, ADB and the World Bank should address these issues and come up with support to solve these structural problems because we think if they were solved, we could see the conclusion of the crisis," he said at a press conference held at Bank Indonesia's office.
But Sakakibara declined to name the structural issues, saying it was not in his capacity to disclose them.
Despite the structural problems, Indonesian economic fundamentals remained sound, he said.
"After a lengthy discussion with the IMF, the World Bank and ADB yesterday, we all shared the same view that the Indonesian economy is not suffering from a financial crisis but a confidence crisis," he said.
"It is the loss of confidence on the part of Indonesians that has worsened the situation, not weak fundamentals," he said of the reason behind the sharp fall in the rupiah.
To restore confidence, there must be structural reform, especially in the financial sector, he said.
Sakakibara said the crisis, aside from being caused by the contagion effects of currencies in the region, was also triggered by the rupiah being overvalued, which needed correction.
The sharp depreciation of the rupiah against the dollar was partly justified, he said, comparing the current situation to the time when the Japanese yen was overvalued against the dollar.
In the last two years, the yen had depreciated by as much as 50 percent against the dollar to correct itself, he said.
Sakakibara said he believed that the currency had completed its adjustment and would stabilize by next month.
He said Japan had also proposed to Indonesia to hold regular bilateral meetings to discuss foreign exchange and financial issues.
According to Sakakibara, outstanding Japanese loans to Indonesia's private sector reached $22 billion by the end of last year.
This was about half of Japanese loans to Thailand, he said, adding that short-term loans made up about 60 percent of the amount. (das)