New BI governor sees CBS as attractive

JAKARTA (JP): Bank Indonesia's (BI) new governor, Sjahril Sabirin, said yesterday he saw the currency board system as an attractive way to stabilize the ailing rupiah.

"Our focus in the days and weeks to come is to create a stable and affordable rupiah exchange rate level," Sjahril said yesterday after a ceremony marking the transfer of office from his predecessor J. Soedradjad Djiwandono to himself.

He said the currency board system (CBS), which would peg the rupiah to a foreign currency at a fixed exchange rate, was an attractive option to support the currency.

However, preparations for the system must be done thoroughly, he said, adding that if the system was set up, it would not be rushed and would be well-prepared.

He said if the plan was implemented, the central bank would control the system.

"At this point, as far as we have been following, CBS will function under BI," he said.

Sjahril said the fall in the rupiah against the U.S. dollar to about 9,500 at present from Rp 2,450 in July, has badly affected all sectors of the economy.

"If it stays at the current rate for a long time, a lot of suffering will occur, not only in the business sector but also to common people," he said.

Whether the government would implement a currency board or not, Sjahril said stabilizing the rupiah was an urgency and needed to be resolved immediately.

Sjahril also denied that anticipation over the government's currency board plans has caused a scarcity of funds in banks during the past week.

Domestic and foreign banks are currently offering high interest rates to herd back public funds -- an indicator of tight liquidity.

"We have to check on it first, but this is a market mechanism. It may just be flows of funds from one bank to another," he said.

He said the rise in interest rates had no connection with any public anticipation to buy dollars at a more favorable exchange rate after a currency board implementation.

The rupiah has lost over 70 percent of its value against the dollar since the crisis began in July.

Sjahril was appointed by President Soeharto last week, replacing Soedradjad, who was said to oppose the currency board system.

Minister of Finance Mar'ie Muhammad told the House of Representatives Monday that the final decision on the currency board rested with President Soeharto.

The United States, European governments and the International Monetary Fund (IMF) have criticized the plan.

The IMF has threatened to cut off its US$43 billion bailout program if Indonesia proceeds with the CBS.

The Golkar faction in the House of Representatives Commission VIII for state budget and finance, research and technology yesterday urged the government to issue a clear-cut decision on the CBS as soon as possible.

"Although there are problems with the IMF, the Golkar faction expects a clear and decisive move on CBS or other appropriate measures that could bring the rupiah exchange rate to Rp 5,000 per U.S. dollar," said Paskah Suzetta, Golkar's spokesman, at a meeting with Finance Minister Mar'ie Muhammad.

"If the IMF doesn't agree (with Indonesia's CBS plan), it should come up with other alternatives," added House member Indra Bambang Utoyo, who summed up the commission's final hearing on the 1998/1999 state budget proposal.

Golkar, Suzetta said, approved of the government's plan to implement a currency board as an alternative to deal with the monetary crisis. (das/08)