Neiss urges interest rate reduction to fuel recover
Neiss urges interest rate reduction to fuel recover
JAKARTA (Dow Jones): Indonesia should be "a little faster" in allowing interest rates to fall to help fuel a recovery, the International Monetary Fund's top Asia Pacific official Hubert Neiss said Monday.
Speaking to reporters as he arrived in Jakarta to lead the fund's review of Indonesia's economic program, Neiss said: "The (interest rate) trend is firmly downward and that's how it should be."
He said one of the focus points of the review would be "interest rate reduction to force the recovery."
Neiss' comments seem to contradict those contained in a recent report from the IMF's board which urged Indonesia not to ease rates prematurely. Neiss stressed there was no contradiction however.
Neiss also said he sees room for the rupiah to strengthen further despite the falling interest rates.
"There is scope for improvement (in the rupiah)," he said.
The rupiah has managed to gain ground despite the fact that Bank Indonesia has been guiding interest rates lower at its weekly central bank auctions. Interest rates for one month central bank notes are at just over 32 percent now and dealers expect another drop of as many as 100 basis points at this week's auction Wednesday.
Monday, the rupiah broke below the Rp 8,000-level to a U.S. dollar - its firmest level since early January - and is trading at Rp 7,940 to a dollar in a late trading.
The second main emphasis of the review is the collection of debt by the state banks in order to reduce the cost of bank restructuring. "That is an important issue," Neiss said.
During the review with the Indonesian government, Neiss said the IMF will set targets, deadlines and agree on methods to recover the debt.
He also said the IMF would push the Indonesian government and state banks to initiate bankruptcy filings and restructuring against the 20 largest debtors of each state bank and the Indonesian Bank Restructuring Agency.
"The cost of bank restructuring to the government is very high," Neiss said. "So you have to make sure that you have as much offset from recovery as possible." In Indonesia's budget for this fiscal year ending March 31, 2000, the government has pledged to generate 17 trillion rupiah through asset recovery.
Elsewhere, Neiss said government delays in issuing bonds to finance bank recapitalization were "technical."
He said the basic policy is in place and that the first tranche of bonds will be released "very soon."
The IMF conducts bi-monthly reviews of its economic reform program in Indonesia. Neiss expects that this review will be completed in a week.
The completion of the review will pave the way for the IMF executive board to approve the release of the next tranche of funds. Neiss said that together with assistance from Japan's so- called Miyazawa fund, the completion of the review will lead to the disbursement of about $1 billion before Indonesia's elections on June 7.
The June parliamentary elections are the country's first multi-party elections in over three decades.
Neiss stressed that the elections shouldn't have any impact on the IMF's economic reform program. "The program is proceeding on its own basis. It shouldn't be hostage to the political calendar," he said.