Rupiah problems purely political: Ex-IMF director

Rupiah problems purely political: Ex-IMF director

SINGAPORE (Dow Jones): The beleaguered Indonesian rupiah's problems are purely "political" and there is little that the country's central bank can do to shore up the currency, former International Monetary Fund Director Hubert Neiss said Wednesday.

Bank Indonesia's recent moves to intervene in the foreign exchange market and raise interest rates, though necessary, won't significantly boost the currency, Neiss told reporters on the sidelines of a banking seminar in Singapore.

Neiss is currently Deutsche Bank's chairman for Asia.

Last week, amid increased political uncertainty, the rupiah fell to Rp 11,500 against the dollar, its lowest level since August 1998.

The rupiah closed barely changed in subdued dealings Wednesday as the market looked for fresh direction after sideways movement Tuesday.

The dollar closed at Rp 10,425, little changed from Rp 10,420 Tuesday.

Dealers said local companies reduced their dollar bids at levels above Rp 10,400 waiting for the U.S. unit to slip below the level.

Neiss said he doesn't expect Bank Indonesia to keep interest rates high for a long time as this would hurt the country's economy.

The former IMF official who was instrumental in formulating the multilateral agency's rescue package for Indonesia, however, declined to comment on whether Indonesia had made any recent progress in economic reforms suggested by the body.

"Both sides (Indonesia and IMF) are still engaged in discussion," he said.

Replying to questions from seminar delegates earlier, Neiss said though "Indonesia has had a bad press" due to its political situation, it has made "substantial progress in rehabilitating" the domestic banking sector.

"The priority of banks (now) should be to fully divest nonperforming assets," he said.

Neiss noted that despite Indonesia's woes, its economy was growing, albeit slowly, and has potential for faster growth in the future.

Indonesia "is still in a very difficult transition period," he said.

Replying to reporters' questions, Neiss said there was no risk of recession in Asia this year.

After a rapid 6 percent-8 percent growth last year, Asian economies will grow at a slower 2 percent to 4 percent rate this year, but that doesn't imply Asia is heading into a recession, he said.

Neiss said Asian nations are generally well positioned to avert another 1997-98 type of crisis as they have higher reserves, lower short-term debt and positive current account balances.