No rupiah devaluation: Soeharto

No rupiah devaluation: Soeharto

JAKARTA (JP): President Soeharto made it clear yesterday that
Indonesia has no plans to devalue the rupiah or to reschedule its
foreign debt.

"The government has no reason to devalue the rupiah or
reschedule its foreign debts," the President was quoted by
Minister/State Secretary Moerdiono as saying.

Moerdiono, asked about the President's response to the dollar
rush in the money market last week, said that the speculative
trading of the U.S. greenback was irrational.

The dollar rush rocked most emerging markets in Asia,
including Indonesia, Malaysia, Thailand and the Philippines,
following the devaluation of the Mexican peso, which caused a
massive capital outflow from the Latin American country.

Foreign fund managers, fearing that Indonesia would also carry
out a Mexican-style devaluation, cashed in their Indonesian
portfolio investments and bought U.S. dollars.

"The people have no reason to fear that there would be another
devaluation of the rupiah," Moerdiono said, adding that the
devaluation of the rupiah in 1986 "hurt the government" and that
it would not be repeated.

Moerdiono also confirmed that the government has no intention
to reschedule its foreign debt.

As at the end of September, the country's total foreign debt
stood at $93 billion, of which $56.66 billion was owed by the
government and the remaining $36.34 billion by the private
sector.

Bank Indonesia Governor J. Soedradjad Djiwandono and Minister
of Finance Mar'ie Muhammad described the dollar rush as the
irrational actions of people who did not understand the
Indonesian economy.

Both said that the fundamentals of Indonesia's economy are
much stronger than those of Mexico, which not only has heavy
foreign debts but also a huge foreign account deficit.

Indonesia, whose ratio of the current account deficit against
the gross domestic product is only around 2.3 percent as compared
to eight percent in Mexico, has never defaulted its foreign
debts.

Interest

To further pacify the money market, Bank Indonesia (the
central bank) yesterday raised discount rates on short-term
commercial papers by a half-percentage point in a fresh move to
stabilize the rupiah.

The discount rate for one-week money market securities (SBPUs)
was raised to 15 percent per annum from 14.5 percent previously,
two-week securities to 15.25 percent from 14.75 percent and
commercial papers with a maturity of 28 days to 15.75 percent
from 15.25 percent.

A Bank Indonesia official said that the rise in interest rates
on SBPUs, the central bank's instrument to add the liquidity in
the money market through the purchase of commercial papers, was
the fourth since August.

No official statement was available from the central bank but
analysts said that the move would help ease the rush for the U.S.
dollar.

The rise in interest rates on the SBPUs would discourage the
rush for the dollar as people would have higher returns when
investing money in rupiah, said the analysts.

Normal

The money market returned to normal yesterday, with the rupiah
bouncing back to its pre-rush level of 2,215 on the spot market,
a foreign exchange dealer said.

"Foreign exchange trading was quiet and no more signs of a
rush were seen," said the dealer.

The rupiah, which fell to its lowest level of 2,185 against
the dollar on Thursday, inched up to close at 2,219 on Friday
following the central bank's massive market intervention and
strong statements by the minister of finance and the Bank
Indonesia governor.

The central bank auctioned at least $500 million for three-
month forward transactions last week with higher premium rates in
a bid to stabilize the volatile rupiah.

The central bank, usually closed on Saturdays, opened for
foreign exchange clearing last Saturday to curb a possible
mounting of the rush in money changers. (hen)