News of impending IMF visit fails to bring cheer to rupiah
News of impending IMF visit fails to bring cheer to rupiah
JAKARTA (JP): The rupiah dropped again on Friday despite news
that the International Monetary Fund (IMF) mission would visit
Jakarta on Wednesday.
The local currency, which fell to its low of Rp 10,940 against
the U.S. dollar in early trade, eased slightly to close at Rp
10,875, following intervention by Bank Indonesia (BI).
Despite the slight gain, the Indonesian unit was, however,
still lower when compared with its level of Rp 10,740 in late
trading on Thursday.
Currency analyst Farial Anwar said that the further fall of
the rupiah was partly due to the fall in other regional
currencies, which have been weakening against the dollar over the
past few days.
Farial said that the internal factors which had been putting
pressure on the rupiah were still basically the same: political
uncertainty and negative developments on the economic front.
He said that the rupiah could soon move through the new Rp
11,000 resistance level.
Farial said that on the political side, worsening relations
between embattled President Abdurrahman Wahid and his opponents
had been creating jitters in the currency market, particularly
with the latest reports of Abdurrahman's supporters planning a
holy war.
Media reports saying that the President doubted the competence
of Vice President Megawati Soekarnoputri to become President also
played a part in the loss of confidence in the local currency.
Farial said that on the economic side, reports that the 2001
state budget deficit could be greater than projected had also
undermined confidence.
Coordinating Minister for the Economy Rizal Ramli said this
week that the deficit could exceed 5 percent of gross domestic
product (GDP) compared with the original estimate of 3.7 percent
of GDP, unless measures were taken immediately.
Farial said fears of a further slide in the rupiah had
prompted corporations to purchase dollars, including those for
the purpose of debt repayment.
"But there are also those holding huge cash sums who are
purchasing dollars in a flight toward hard currency," he said,
pointing out that some people perceive the dollar as a safer
currency, while investment in the rupiah is haunted by the
specter of inflation, higher tax, and depreciation.
It is expected that the IMF would send a mission to Jakarta on
Wednesday to review the possibility of the Fund to disburse the
latest, but currently stalled, US$400 million loan tranche to
Indonesia.
"The mission should start work next Wednesday...all conditions
for the mission (to visit) have been met," IMF Indonesia
representative John Dodsworth told Reuters.
"But the market has already discounted this," Farial said.
Dodsworth said earlier this week that the IMF mission would
make the visit early next week, after a panel of international
and domestic experts have completed the review of the government-
proposed amendment of the central bank law.
Earlier in the day, BI Governor Sjahril Sabirin stated that he
expected the rupiah to appreciate with the visit of the IMF
mission.
"Let's hope the IMF team can reach agreement with the
government ... this will help the rupiah," Sjahril said.
He added that if the rupiah appreciated, there would be room
for the central bank to allow the interest rate of its SBI
promissory notes to decline.
The SBI interest rate has been increasing during recent weeks,
raising concern that it would create trouble for some banks.
It remains unclear, however, whether the IMF mission will be
able to reach agreement with the government over key economic
reform issues. The remaining important issues include slow
progress in corporate debt restructuring and concern over the
controversial amendments to the central bank.
The IMF postponed disbursement of the next tranche of its loan
to the country in December last year due to signs of the
government wavering in its key economic reform program, including
delay in the divestment of government ownership in Bank Central
Asia and Bank Niaga, and concern over the poor implementation of
fiscal decentralization policy and the amendment of the central
bank law.
But the legislature has recently approved the bank divestment
plan, and the government has issued a decree banning provincial
and district administrations from borrowing for the time being.
The delay in the disbursement of the IMF loan also prompted
other international lenders to put on hold their assistance to
Indonesia, and creditors threatened to cancel the restructuring
of the country's sovereign debt.
The panel of experts is expected to complete the review of the
proposed amendment of the central bank law on Sunday, and to
report to the government.
The IMF has expressed concern that the proposed amendment of
the central bank law would jeopardize the independence of BI.
(rei)