President blames rupiah's fall on complex problems

JAKARTA (JP): President Abdurrahman Wahid blamed the strong volatility of the rupiah, which dropped to a 16-month low of Rp 9,000 to the American dollar on Tuesday morning, on the complexity of problems Indonesia is facing.

"The financial market is greatly concerned about the complex difficulties we are encountering. Hence, the rupiah has been highly volatile," Abdurrahman told a news conference on Tuesday.

The market, the President added, notices the disharmony among the people, the absence of resoluteness in the nation to safeguard the authority of the government.

He said the government could not work alone in defending the rupiah.

"All of us should feel duty-bound to safeguard the rupiah," Abdurrahman said in reply to a question as to whether the latest steep fall of the currency had perhaps been set off by his controversial remark about the pending arrest of several legislators allegedly implicated in corruption and recent waves of violence in Jakarta and other provinces.

The rupiah closed at Rp 8,960 per U.S. dollar on Tuesday, the same as the previous day, after touching an intraday low of Rp 9,000 against the American greenback.

Dealers said there was some profit-taking against the dollar in the afternoon after Abdurrahman denied reports that some top politicians would be arrested on suspicion of inciting riots in the country.

Asked about the implementation of the reform measures stipulated in the government's June letter of intent to the International Monetary Fund, Abdurrahman asserted that the reform agenda was by and large being executed according to the deadlines.

His ministers, he added, had done their utmost to cooperate in meeting the reform deadlines, although he admitted that not all of the programs had been accomplished.

"But the IMF itself has expressed satisfaction about the pace of the reform implementation, indicating that what had so far been completed was already quite impressive," the President said.

He stressed that the country's economic growth would not have exceeded most analysts' estimates if the implementation of the reform measures was way below the target.

The IMF postponed the disbursement of its second loan tranche to Indonesia in April after the government failed to meet most of the reform deadlines as stipulated in the January letter of intent.

The IMF will make a complete review of the June reform agenda later this month.

Temporary weakness

Meanwhile, Bank Indonesia senior deputy governor Anwar Nasution said that the current weakness of the rupiah was only temporary due to a combination of external and internal factors.

Speaking to reporters after meeting the President, Anwar said that other currencies in the region had been weakening against the U.S. dollar, but the rupiah's weakness had been worsened by domestic political uncertainty.

Anwar said that the rupiah would strengthen again if the country continued to implement the economic reform program agreed upon with the IMF and if political uncertainty subsided.

He declined to make any predictions as to when the currency would rebound, saying that it "is hard to predict amid the current situation."

But he said the central bank would do its best to defend the rupiah, including through market intervention and interest rate policy.

He declined to say how many dollars would be sold by Bank Indonesia to shore up the rupiah.

In a related development, finance minister Bambang Sudibyo said that the government had no plans at the moment to revise the exchange rate assumption used in the 2000 state budget.

Speaking on the sidelines of a hearing on the new tax bill with the House of Representatives, Bambang said that a mechanism to revise the budget would be through a budget amendment normally discussed with the House in October.

The government has assumed an exchange rate of Rp 7,000 per U.S. dollar in the current state budget.

Bambang also said that although the weakening of the rupiah would inflate government dollar-based spending, it would be offset by dollar earnings, particularly from oil revenue.

He said oil prices were currently at a record high.

Bambang said the current weakening of the rupiah was largely due to noneconomic factors.

Separately, Cabinet Secretary Marsillam Simanjuntak announced that the President supported the decision of the minister of communications to raise bus fares.

"But the rate and timing of the increase have yet to be decided," Marsillam said at a news briefing on the results of the weekly economic monitoring meeting on Monday afternoon.

Abdurrahman, according to Marsillam, stressed the importance of improving transportation services and safety and of differentiating the policy on fares for city bus services and intercity transportation.

"The main reasoning behind the policy on different fares is that intercity transportation is not as sensitive to fare hikes as city buses, which mostly serve commuters," added Rizal Ramli, chief of the State Logistics Agency, who acts as rapporteur of the weekly meeting.

Rizal said the President also instructed the industry and trade ministry to take concerted measures in cooperation with the banking industry to raise capacity utilization at manufacturing companies in a bid to further expand exports.

Abdurrahman ordered the minister of finance to allocate a portion of off-budget funds to an emergency relief fund to improve the government's capacity to cope with natural disasters, Marsillam added. (prb/vin/rei)