Rupiah will get stronger: Sjahril

Thu, 15 Oct 1998 | 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.