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)