Rupiah will get stronger: Sjahril

Thu, 15 Oct 1998, 00:00 WIB | Source: DJ

SINGAPORE (Dow Jones): Bank Indonesia Governor Sjahril Sabirin
said Wednesday policies prescribed by the International Monetary
Fund for Indonesia are working.

Addressing a conference sponsored by the World Economic Forum
here, Sjahril also said the delay in his country's recovery from
the crisis rocking its economy is the result of non-economic
factors.

He said the he is "confident" the rupiah will continue to
improve. Wednesday, the dollar dropped below Rp 9,000, trading
midday in Asia around Rp 8,850.

The rupiah is sharply higher than levels of around Rp 10,800
at the beginning of this month and well below the government's
and IMF's year-end target for the currency at Rp 10,000 per
dollar.

Sjahril noted the rupiah has posted strong gains in recent
days, extending a broad advance over the past months.

Asked at what level the rupiah could reach toward the end of
the year, Sjahril replied: "I would think that a value of between
Rp 7,000 and 8,000 (is achievable), and that would be
sustainable."

Sjahril attributed the rupiah's strength to reduced demand for
dollars.

This, he said, was partly due to the successful resolution of
domestic banks' external debt and trade credit through the
implementation of the Frankfurt Agreement with creditor banks
earlier this year.

"Although the implementation's success remains to be seen, the
agreement reached in Frankfurt...has relaxed pressure on the
exchange rate," he said.

Sjahril said the rupiah has also strengthened on the monetary
authority increasing the supply of dollars to the currency market
and the central bank's strict adherence to "strong monetary
discipline."

Sjahril said the stronger exchange rate, coupled with lower
inflation expectations, has made it possible to let interest
rates decline somewhat.

"It is noteworthy, however, that the decline in interest rates
happened without having to relax monetary aggregates," Sjahril
said.

Monitoring

The central banker also said, "Better monitoring is needed of
short-term capital flows," citing overexposure of corporations to
short-term debt.

Sjahril reiterated that the country doesn't intend to impose
capital controls, but is studying a plan to better monitor
foreign-exchange transactions.

He noted that Bank Indonesia in April introduced a reporting
system on the foreign liabilities of the corporate sector, and
that measures to more closely monitor foreign-exchange
transactions are in the pipeline.

But it was too early to say what form the monitoring would
take or when it would be implemented, he said.

In an address to the Forum's delegates, Sjahril said the
central bank was fully aware of the importance of capital inflows
to reactivate the Indonesian economy.

But, he cautioned: "We have learned a lesson that short-term
capital inflows can be very volatile...and therefore should be
kept monitored and checked."

He said that in the spirit of a "market-friendly" policy, a
"prudential reporting system and external debt management are
deemed necessary."

On Tuesday in Jakarta, Sjahril said Indonesia wasn't planning
to force exporters to repatriate their foreign exchange earnings,
but was instead working on a draft plan to monitor the flow of
foreign exchange better.

Sjahril noted the inflation rate in October would come in
close to zero, and that only non-fundamental factors were likely
to derail the country's improving economic prospects.