More deregulation needed 'to protect rupiah'

JAKARTA (JP): Senior economist Sumitro Djojohadikusumo and businessmen Sofyan Wanandi and James T. Riady yesterday praised the government's quick move to expand the dollar-rupiah intervention band to withstand speculative attacks on the rupiah.

But they suggested the government further deregulate the economy, reduce the current account deficit and manage foreign debt to strengthen the economic fundamentals and keep speculators out of Indonesia.

Sumitro said Bank Indonesia's widening of the intervention band and depreciation policy had discouraged speculators away from the rupiah.

"Speculators are always there ... one of the weapons to confront speculators is to make 'lose their shirts', that is by making the target of speculation infertile. If the target is infertile, they will lose," Sumitro said after a seminar here.

He said the wider intervention band had made the rupiah "infertile" and more expensive to speculate on, and let the market bear all the costs and risks.

Bank Indonesia Friday widened the dollar-rupiah intervention band, in which the rupiah can float before the central bank intervenes, from 8 percent to 12 percent.

The move was made the day the Philippine peso was devalued, following the devaluation of the Thai baht early this month.

Sumitro said speculative attacks on the rupiah were easing following the widening of the intervention band.

The rupiah recovered to 2,450 per U.S. dollar at 5:15 p.m. Jakarta time yesterday from Rp. 2,453 at the opening and Rp. 2,469 on Monday.

He predicted the government would not devalue the rupiah because it had systematically depreciated the currency since the last devaluation in 1986.

Unlike Indonesia, Thailand and the Philippines have long followed relatively fixed currency rates.

"But of course in the short term we have to do several things and stay vigilant," Sumitro said.

"And the most effective way to withstand speculation is to reduce deficit and foreign debt and continue deregulation measures," he added.

He praised the government for the latest deregulation measures it took earlier this month as "the right move on the right track".

"But deregulation has to continue. The existing monopolies need to be dismantled; if not all, some is okay. But this is not a purely economic problem, it is political as well," Sumitro said.

Sofyan and James agreed, saying Indonesia should continue prudent macro and microeconomic management to avert speculation on the rupiah.

Sofyan, chairman of the Gemala group, warned that the rupiah would become prey for speculators unless the government further improved exports and reduced the current account deficit.

He also warned that even the country's foreign exchange reserves of slightly over US$20 billion would not be enough to withstand massive speculative attacks.

"Therefore, I appreciate what the central bank has done to confront speculators, by widening the intervention band and forging cooperation with other central banks in the region," Sofyan said.

He also called on local commercial banks to help the government withstand speculative attacks on the rupiah.

James, deputy chairman of the Lippo group, said the central bank's latest move to limit banking loans to the property sector also helped protect the rupiah from speculative attack.

"I see it as a preemptive strike to avert international speculators from attacking the rupiah for fear of the property sector collapsing as it did in Thailand," James said.

He said the property market in Indonesia was still healthy, compared to those in Thailand, the Philippines and even Malaysia.

To maintain confidence in the rupiah, James said local corporations should maintain prudent financial management by avoiding short positions on the dollar. (rid)

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