Kwik upbeat rupiah will strengthen

JAKARTA (JP): Newly appointed Coordinating Minister for Economy, Finance and Industry Kwik Kian Gie said on Wednesday that the rupiah could strengthen to Rp 6,000 against the U.S. dollar if the new government could prove its commitment to uphold the supremacy of the law.

Kwik said that upholding the supremacy of the law was key to the return of foreign investors' confidence into the country.

"I can't say when (the rupiah will strengthen to the Rp 6,000 level) because it's a matter of trust," he said in a press conference following a meeting with President Abdurrahman Wahid, popularly known as Gus Dur.

Kwik was accompanied by five other economic ministers.

The rupiah ended lower on Wednesday at Rp 6,910 against the American greenback as compared to Rp 6,785 at the previous day's close as investors took profit from the recent rally driven by last week's successful presidential election.

Strengthening the rupiah is seen as a cornerstone toward the country's economic recovery.

The rupiah plunged to as low as Rp 17,000 to the dollar last year when the economic crisis deepened.

Head of research at securities firm PT Vickers Ballas Tamara Ferry Y. Hartoyo said that although Indonesia now has a new, credible government, elected democratically, which would provide social and political stability, foreign investors would remain on the sidelines until the new government could prove its commitment with reforms, and by particularly upholding the law.

"The most important thing is how to show that in Indonesia the law is not discriminative," Ferry said.

"And the best way to start is with the resolution of the Bank Bali scandal," he added.

Ferry said that foreign investors' confidence had plunged following the economic and political crisis, as reflected in the fall in foreign direct investment (FDI) from US$111 billion in 1997 to $60 billion in 1998 and $11 billion in the first half of this year.

"That's only the approval figure, the realized investment is much lower, possibly at about 30 percent," he added.

He said that an increase in realized FDI would be significant in boosting the value of the rupiah.

The Bank Bali scandal centers around the legally dubious transfer of Rp 546 billion (about $80 million) in commission fees from the bank to a private firm linked with influential people close to former president B.J. Habibie.

The Habibie administration had been dragging its feet in resolving the scandal as it declined to publish the PricewaterhouseCoopers (PwC) audit report on the scandal as demanded by the International Monetary Fund (IMF).

The IMF and the World Bank suspended loan disbursements after Indonesia failed to honor its promise to publish the PwC report.

The PwC report is now in the hands of the House of Representatives, which will decide on whether to publish it or not.

Kwik stressed that it's important to publish the report to meet the transparency demanded both from public investors and donor institutions, particularly the IMF.

Kwik also said that the police must move quickly to resolve the scandal satisfactorily.

"Your role (the press) is important to check on how far the police have gone," he said.

The police have arrested several people allegedly involved in the scandal but it has yet to take similar measures against the influential people.

Kwik said that resolving the Bank Bali scandal was key to amending the country's relations with the IMF as well as other donors.

"In the short term, Indonesia can't do without the IMF," he said.

Kwik pointed out that Indonesia had limited cash to finance its own economic programs, including providing support for the poor amid the current crisis.

"We don't want to lose one generation," he said, pointing to the threat of malnutrition and school dropouts among the poor.

Ferry agreed that foreign loans were crucial to Indonesia.

"The budget deficit this (fiscal) year is estimated at $8-9 billion. Next year it could double," he said.

Meanwhile, Kwik also dismissed concerns that the new economic team would have difficulty in terms of cooperation and coordination.

"I'm sure that we can do it, because those who sit here are educated bureaucrats and statesmen who work for the interests of the people," he said.

"There will be no difficulties in coordination ... give us a chance (to prove it)," he said.

Analysts criticized the new economic team for being appointed more on political considerations rather than on capability to fix the crisis-hit economy. They particularly have reservations about Finance Minister Bambang Sudibyo, who is unknown to the market, and Trade and Industry Minister Jusuf Kalla, a local businessman deemed to have the lack of vision to bring the country toward the globalization era.(rei/prb)