Political situation 'still haunts rupiah'

JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin said on Monday the domestic political situation was still weighing on the exchange rate of the rupiah against the U.S. dollar.

Sjahril reiterated that once the political uncertainty subsided, the rupiah should return to the 7,000 level or stronger against the dollar.

"The market is still waiting for more favorable developments in politics," he said following a meeting with senior economic ministers.

Sjahril was responding to a further weakening in the rupiah against the dollar on Monday. The local unit closed at Rp 8,030 to the dollar compared to its Rp 7,925 opening.

The rupiah weakened after President Abdurrahman Wahid dismissed two key economic ministers early last week in a move that created political uncertainty, because the fired ministers represented the two largest political parties (Golkar and Indonesian Democratic Party of Struggle, or PDI Perjuangan).

Sjahril said the rupiah should strengthen because of positive developments in macroeconomic indicators.

The Central Bureau of Statistics reported on Monday that Indonesia's exports grew by 30 percent in the first quarter of this year, while inflation only increased by 0.56 percent in April from the previous month.

However, the stronger export performance failed to strengthen the rupiah.

Meanwhile, the newly appointed chief of the Jakarta Initiative Task Force (JITF), Bacelius Ruru, said a deal to restructure some US$3 billion in corporate overseas debts was expected to be reached by the end of May.

He said the debts were owed by three large domestic companies. "We will try to reach as many restructuring deals as possible," he told journalists following a meeting with senior economic ministers.

Ruru said JITF expected to facilitate the restructuring of some $10 billion in overseas corporate debts this year.

The task force was established by the government in early 1998 to help assist in the restructuring of the country's private sector debt. Over $20 billion in corporate overseas debts is to mature this year.

Corporate restructuring is one of the top economic measures agreed to with the International Monetary Fund (IMF) help the economy recover.

The JITF plans to provide various incentives, including tax breaks, to encourage debtors and creditors to reach a restructuring deal.

The government began talks on Monday with a team from the IMF to review the country's progress with its economic programs and to design a new letter of intent.

The letter will be delivered at a meeting of the IMF's board of directors in Washington later this month, and will be the basis on which the fund decided whether to disburse some $400 million in new loans to Indonesia.

The money was to have been disbursed last month, but was postponed because the government failed to meet the March 31 deadline to implement key economic programs. (rei)