Kwik says govt may revise 2000 state budget

JAKARTA (JP): Coordinating Minister for the Economy, Finance and Industry Kwik Kian Gie said on Saturday that the government would have to revise the 2000 state budget if the rupiah failed to strengthen from the current level.

"If the rupiah won't strengthen, then (the state budget) has to be recalculated," he told reporters after a meeting with President Abdurrahman Wahid.

Kwik didn't provide any further details.

Senior government officials had repeatedly said that there was no need to revise the budget on the grounds that the weakening of the rupiah was only temporary due to noneconomic factors. They also pointed out that the budget would not be much affected by the weakening rupiah due to the huge windfall in profit from stronger international oil prices.

Kwik is set to embark upon a series of overseas trips, starting on Sunday, with the first stop in Japan, from where he will travel to the U.S. and the Netherlands. He is scheduled to meet Japanese finance minister Kiichi Miyazawa in Tokyo, and International Monetary Fund (IMF) deputy managing director Stanley Fischer in Washington.

The IMF is expected to disburse a US$400 million loan to Indonesia next month after approving the country's new letter of intent, which contains key economic measures.

The 2000 state budget assumes an exchange rate of Rp 7,000 per U.S. dollar. But the rupiah has been weakening over the past couple of months, plunging to a seven-month low of Rp 8,700 per dollar at one point this month.

The rupiah ended lower on Friday at Rp 8,495 per dollar compared to Rp 8,450 earlier, as students and hundreds of onlookers staged a violent rally demanding a speedy trial of former authoritarian president Soeharto.

Separately, Bank Indonesia director for economic research and monetary policy Halim Alamsyah said that the central bank was assessing the development of the rupiah, whether it would continue to weaken or would strengthen.

Halim told Detik.com that if the rupiah failed to strengthen beyond the Rp 8,000 level, the central bank would have to revise its 2000 inflation target.

He pointed out that if the exchange rate remained at Rp 8,000 per dollar it would trigger domestic inflation.

He said the average exchange of the rupiah against the U.S. dollar between January and May 24 was at Rp 8,000 to the dollar, which was some 12 percent lower than the government target.

Bank Indonesia has initially targeted an inflation level of 5 percent to 7 percent for this year, after taking into account a planned increase in fuel prices.

"We will have to report to the House of Representatives if we revise our assumption," he said.

He failed to say whether the economic growth target of about 4 percent would also have to be revised.

The government assumes an inflation rate of 4.8 percent in the 2000 state budget (before taking into account the planned increase in fuel prices), and an economic growth of 3.8 percent.

Halim said that the current fall in the rupiah was primarily caused by noneconomic factors, including political uncertainty and concern over the security situation.

He said that, based on the economic fundamentals, the rupiah should have stabilized at about the Rp 7,000 to 7,500 level.

He said that making intervention into the currency market to support the rupiah amid the current jittery market condition would not be effective.

"It's just like disseminating salt into the sea," he said, adding that Bank Indonesia had enough net foreign exchange reserves, more than $18 billion, which was beyond the IMF's demand of $14.5 billion.

Separately, noted economist Sri Mulyani said that the rupiah would remain volatile over the next couple of months, particularly due to the political tension in the run-up to August's General Session of the People's Consultative Assembly (MPR).

"The current situation is not favorable," said Sri, who is also secretary-general of the National Economics Council (DEN), which gives second opinions to the President on economic issues.

Some legislators have vowed to unseat Abdurrahman from the nation's leadership post during this year's General Session of the MPR.

Sri also said that the rupiah was under heavy pressure because the attitude of the currency market nowadays was asymmetric, in which the market reacted quickly to bad news and slowly to good news.

She said that there was now a tendency that good economic news did not provide a positive contribution because of bad news from the political front.

Sri appealed to the country's political leaders to remain united and avoid making political maneuvers that would only create nervousness in the financial market.(rei)