Rupiah's sharp fall 'temporary'

JAKARTA (JP): The governor of Bank Indonesia, the central bank, J. Soedradjad Djiwandono, said yesterday that he was optimistic the rupiah's free fall was temporary.

Soedradjad said the rupiah's sharp fall against the U.S. dollar was caused more by market sentiment rather than the country's economic fundamentals.

He said the sharp fall in the rupiah in the last two days was due to the market's negative reaction toward the draft state budget for fiscal 1998/1999.

"It is only a temporary reaction. In academic terms it is called an announcement effect," Soedradjad said after meeting with President Soeharto at his residence on Jl. Cendana, Central Jakarta.

Soedradjad, who just returned from an overseas trip to have a knee surgery, also defended the use of an average exchange rate of Rp 4,000 to the dollar in the draft budget.

"It will be an average rate for one year (starting in April)," he said.

During the meeting, Soedradjad was accompanied by Minister/State Secretary Moerdiono and the central bank's newly appointed directors Iwan R. Prawiranata, Miranda S. Gultom, Sjahrir Sabirin and Aulia Pohan.

When asked about the central bank's measures to curb the rupiah's fall, Soedradjad said, "As what we have done in the past, basically we have intervened to prevent further fluctuation. Market sentiment has triggered very strong demand for the dollar, but it has not only occurred here."

When asked about the International Monetary Fund's (IMF) disappointment over Indonesia's commitment to restructure its economy, Soedradjad said the government always worked closely with the IMF, the Asian Development Bank (ADB) and the World Bank.

"The IMF program is still relevant," he said.

IMF officials called Indonesia's crisis worrisome Tuesday and faulted the government for failing to follow through on pledges to restructure its economy.

The rupiah finally broke 10,000 yesterday after making a series of record lows in the last several days.

The U.S. dollar has gained more than 300 percent against the rupiah since the monetary turmoil first hit the country in July last year.

Soedradjad said the central bank's foreign exchange reserves were within a safe level, totaling about US$21.4 billion, enough to finance about five months of imports.

Separately Coordinating Minister for Production and Distribution Hartarto said the country's foreign trade activities showed impressive progress last year.

"From January to October last year we enjoyed an international trade surplus of $8.8 billion resulting from total exports of $43.9 billion compared to imports of $35.2 billion," Hartarto said after meeting with Soeharto at his residence.

Non-oil and gas exports totaled $34.3 billion, representing a 9.7 percent increase over the same period in 1996. Oil and gas exports were about $9.6 billion, representing a 2.9 percent increase over 1996.

Non-oil and gas imports totaled $31.9 billion, or down 2.1 percent compared to 1996. Oil and gas imports were about $3.3 billion, or an increase of 17 percent compared to the previous period.

"The President ordered an all-out effort to boost overall exports," Hartarto said.

The minister said farmers enjoyed great benefits from the rupiah's depreciation because the export of agricultural products was very competitive.

"For example, Cocoa farmers in Sulawesi and pepper growers in Bangka, Sumatra, are benefiting greatly from higher export prices", Hartarto said. (prb)