Rupiah is strong and stable: Mar'ie

Rupiah is strong and stable: Mar'ie

JAKARTA (JP): Minister of Finance Mar'ie Muhammad said
yesterday the rupiah was strong and stable and capital inflows
remained consistent, giving no evidence of inconsistency in the
country's economic fundamentals.

"One of the most striking features of our economic performance
is that we have combined strong economic growth with moderate
inflation," Mar'ie told the Asia-Europe Business Conference here.

"This is in sharp contrast to the situation a few years back
when the economy showed distinct signs of overheating," he said.

Mar'ie said that inflation, which was nearly 10 percent in
1993, had fallen steadily in the past three years to 6.47 percent
in 1996, while cumulative inflation for the first six months of
this year was only 2.54 percent, the lowest recorded in the
1990s.

"There is little reason to suspect any resurgence of inflation
in the short-term," Mar'ie said.

The minister's comment comes amid growing concerns that a
domino affect could result from the Thai baht devaluation on July
2.

The Philippines peso has been under speculative attack since
Monday.

But a Tokyo-based analyst with Kukusai Securities, Yi Chang,
was quoted by AFP as saying yesterday that Indonesia was unlikely
to follow Thailand, as over the past 10 years it had depreciated
its currency by 2 percent to 5 percent annually.

Mar'ie said Indonesia's economy was in good shape despite the
social disturbances during the May election campaign period.

"Our growth prospects for the current year remain strong and
real per capita income now stands at approximately US$1,150," he
said.

Difficulties

But Mar'ie warned difficulties might arise from the export
growth slowdown, non performing loans, inefficient government
officials and environmental degradation.

He said non-oil export growth had fallen to 8.9 percent last
year from 15.1 percent in 1995.

The expected recovery in commodity prices should help the
country's exports but this will be partly offset by an expected
decline in world oil prices.

Indonesia should regain its industrial competitiveness by
establishing more skilled (knowledge-based) and capital intensive
industries but should not neglect its labor intensive industries
which create a lot of jobs, he said.

Indonesia has improved the quality of its human resources in
its drive toward skill intensive industry, he said.

Mar'ie said Indonesia's banking system was still sound despite
cases of non performing loans.

He said the ratio of non performing loans to total credit
peaked in 1993 at 14.2 percent.

To improve the situation, Bank Indonesia raised the reserve
requirement in April this year and issued the following month a
new rule governing off-shore commercial borrowings as well as
improving the requirements for such loans, he said.

It also banned loans for land acquisition and land development
for medium and large properties.

The capital adequacy ratio will be raised in September this
year and banks will be encouraged to write off bad loans when
appropriate, he said.

The government planned to strengthen state-owned banks by
merging them, said Mar'ie.

The minister emphasized the importance of good governance in
sustaining long term growth.

"We must create a good governance to protect the weakest
citizens and ensure fair and open transactions," Mar'ie said.

"We have come to recognize good governance is essential in
ensuring that growth is accompanied by social justice," he added.
(jsk)

Editorial -- Page 4

Related photo -- Page 10

Related story -- Page 12