Rupiah depreciation limited to 4%
Rupiah depreciation limited to 4%
JAKARTA (JP): Minister of Finance Mar'ie Muhammad announced yesterday that the depreciation of the rupiah against the U.S. dollar will be limited to between three percent and four percent in the 1995-1996 fiscal year.
"As in the past, in 1995-1996 the rupiah is projected to depreciate by around three percent or four percent," he told reporters after attending the plenary session of the House of Representatives (DPR) on the 1995-1996 draft state budget.
The minister said that allowing the rupiah to depreciate to between three percent and four percent would not hurt the competitiveness of Indonesia's export products.
The minister made the brief remarks to reporters who asked him if the government would take any further action to stop the speculative attacks on the rupiah.
The rush on dollars swept most developing countries, including Indonesia, Malaysia, Thailand and the Philippines, following the devaluation of the peso in heavily indebted Mexico late last year.
Foreign fund managers dumped their rupiah and bought dollars on the basis of fear that Indonesia, which also owes a high amount of foreign debts, would do the same.
The spot rate for the rupiah, which dropped to a low of above 2,285 against the dollar on Friday, further strengthened yesterday to 2,210, up from 2,215 on Monday.
Money market dealers said yesterday that the foreign exchange trading has completely returned to normal following the massive market intervention by Bank Indonesia (central bank) last week.
Market sources said the central bank sold at least US$700 million to curb the speculative trading.
Engineered
Fuad Bawazier, an executive of the Association of Indonesian Economists, said that the speculative trading might also have been engineered by money changers.
"Money changers might have intentionally circulated the devaluation rumor to destabilize the money market and then take the advantage of the chaos," he said.
Fuad, who is also tax director general, said that the local money changers could have colluded with their overseas partners in spreading the devaluation rumor.
Government officials and economists said that likening the Indonesian economy to that of Mexico is irrelevant and that the devaluation rumor was completely irrational.
Overseas and local analysts share the view that the condition of Indonesia's economic fundamentals is much healthier and stronger than those of the financially troubled Mexico.
Prof. Sumitro Djojohadikusumo, the country's most senior economist, said here yesterday that Indonesia's foreign debts, which totaled around US$93 billion as of last September, remained at a safe level.
Sumitro, who is often critical of the government's economic policy, cautioned, however, that Indonesia should be more careful in managing the debts, which are expected to reach the $100 billion level by March next year.
"Both the government and the private sector should use their loans for productive activities," he said.
Sumitro warned against using foreign loans for such luxuries as the construction of golf courses. (icn/hen)