RI might link rupiah to basket of currencies
RI might link rupiah to basket of currencies
TOKYO (Agencies): Indonesia is considering linking its
struggling rupiah to a basket of currencies under a band system,
Vice President B.J. Habibie told a senior Japanese businessman
yesterday.
"The currency basket system can be considered" as an option,
Habibie told a meeting of the Federation of Economic
Organizations, or Keidanren, on the second day of his four-day
visit here.
"Indonesia will strive for the stabilization of the
macroeconomy and tighter bank supervision," a Keidanren spokesman
quoted him as saying.
His words will add fuel to the row which erupted when Jakarta
said it was considering pegging the rupiah to the dollar. That
provoked angry responses from the United States, Europe and the
International Monetary Fund.
Jakarta had wanted to peg the rupiah at between 5,000 and
6,000 to the dollar to stabilize the currency, whose 70 percent
fall since mid-1997 has wrecked the Indonesian economy.
Foreign exchange reserves at central Bank Indonesia fell from
more than $21 billion at the end of 1997 to $16.3 billion at the
end of last month.
Many analysts say such weak reserves are insufficient to
support a fixed exchange rate.
In Jakarta, BI Governor Sjahril Sabirin said yesterday that
the government had yet to decide the possible reintroduction of
the currency basket system, in which the rupiah would be traded
within a certain band.
"We're still discussing it," he told journalists yesterday
following a monetary meeting with Finance Minister Fuad Bawazier
and other senior officials of the ministry.
The South China Morning Post also quoted Sjahril Wedneday:
"There has been a discussion about a currency board. There may
be some alternatives. One of those alternatives, perhaps is
going back to the band system."
The currency board system, which would pegged the rupiah at a
fixed rate to a foreign currency, had been informally proposed by
the government in February but was strongly rejected by many
including the IMF and Indonesia's major donor countries.
Sjahril said a return to the former band system, abandoned
last August, may start with a wide band progressively narrowing
towards a free market level.
"It is not to say that if we go back to the old band system we
will say (it) is now 5,000 to 6,000 rupiah. It should not be
that way," he said.
"The approach may be to raise the rate little by little
gradually to a stronger level," he said.
Alternatively, the central bank could set what it considered a
realistic narrower bank, the Hongkong newspaper said.
In both cases the central bank would then move towards
shifting the band lower as Indonesia's economic reforms progress
and sentiments strengthen, it said.
"Either may be workable," he said.
"If, say, the agreement with the IMF is reached and capital
starts to flow in and foreign exchange reserves are stronger,
that could strengthen the rupiah gradually," he said.
"If the rupiah strengthens to a certain level (against the
U.S. dollar), we may revise the band again... if it gets
stronger to 7,000 for example, then we may see whether 5,000 is
achievable," he said.
Sabirin told the Post he would not rule out intervention using
the country's foreign reserves to aid the process.
Following a devaluation of the baht in July, Bank Indonesia
widened its rupiah trading band from eight percent to 12 percent
on July 8. But as the rupiah continues to be under attack the
central bank abolished its managed exchange rate system on August
14.