Sjahril says rupiah to remain floated
Sjahril says rupiah to remain floated
JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin said
yesterday that the central bank has no plans to reintroduce a
managed exchange rate system to arrest the rupiah's free fall
against the U.S. dollar.
The central bank governor indicated that the reintroduction of
a managed floating rate policy and other forms of capital control
were no longer effective ways of managing the national
currency.
He was dismissing earlier rumors that the central bank would
be forced to reinstall a managed floating rate system after the
currency came close to its historic low of Rp 17,000 to the
dollar on Wednesday in defiance of high domestic interest rates.
The managed floating rate system was abandoned on August 14
last year after a costly attempt by Thailand, Malaysia, the
Philippines and Singapore to protect their currencies from
speculative attacks failed.
Before it was floated, movement in the rupiah's exchange rate
was set within a trading band. The trading band was expanded to
as wide as 12 percent in July when the rupiah started to come
under speculative pressure.
The government decided to float the rupiah after the central
bank lost US$1.5 billion in efforts to protect the currency
between July 21 and August 13.
Sjahril also dismissed rumors that the central bank intended
to impose capital controls to prevent the rupiah from sliding
even further.
"We will maintain an open foreign exchange regime," he said
after signing a US$1 billion trade loan agreement with Japan Exim
Bank.
He said that the country exercised tight capital controls in
the 1970s but still failed to stop capital outflow.
"People always find ways to send their money out of the
country," he added.
He said that one way in which BI was propping up the rupiah
was by providing domestic banks with the foreign exchange needed
to meet their foreign obligations, including trade finance
debts.
He declined to say at what exchange rate the banks were buying
dollars for, but said it would be at BIs own rate, which mirrors
market fluctuations.
"The rupiah improved slightly today," he said, using this as
evidence of the prudence of BIs decision to help the domestic
banks.
The rupiah closed at Rp 15,000 yesterday after strengthening
to as high as Rp 14,200. It was trading at Rp 2,450 to the dollar
in July last year.
The agreement reached at the recent Frankfurt debt talks
obliges domestic banks to settle more than $1 billion in trade
finance arrears owed to foreign banks before the country can
participate in the agreed debt relief program.
Sjahril also said the central bank would continue to maintain
its high interest rate policy to stabilize the rupiah, despite
its unpopularity with the business sector and criticism from the
House of Representatives. (rei)