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)

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