Sjahril targets lower rates, stronger rupiah

Sjahril targets lower rates, stronger rupiah

PARIS (Dow Jones): Bank Indonesia Governor Sjahril Sabirin
said Tuesday he sees room for further interest-rate declines in
Indonesia, and hopes for a concurrent rise in the rupiah's rate
against the dollar.

In an interview with Dow Jones Newswires in Paris, Sjahril
said: "I'm rather optimistic that we will have the opportunity to
let interest rates go down...But any lowering from the current
level would have to be done very gradually."

He gave as a reference the decline in rates from over 70
percent in September to around 37 percent now, and said any
further fall in interest rates would "have to occur more slowly
than that."

Asked whether the current rupiah rate against the dollar was
sufficiently strong to allow a recovery in the Indonesian
economy, Sjahril said, "the current level of the rupiah is
already all right."

He added, however, that the central bank would prefer to see
the currency return to its position of a few months ago.

"Of course, we wish that the rupiah would strengthen a bit
more, to reach its level from early December of around Rp 7,500
to the dollar." he said.

Interest rates on benchmark one-month central bank notes fell
slightly - just four basis points - at last week's auction, the
first drop since Jan. 6. Market participants doubt Bank Indonesia
can guide rates much lower than that now, despite its stated wish
to do so, given the rupiah's weakness.

Although the currency strengthened a bit on the government's
long-awaited recent announcement that it would close 38 banks, it
has since slipped back. Late Tuesday, the rupiah was quoted at Rp
8,950 to the dollar.

Sjahril gave a presentation to French bankers and to the Bank
of France Monday on bank restructuring in Indonesia. He said the
bankers received the presentation "positively," but declined to
go into detail.

Commenting on the restructuring plan, Sjahril said that of the
Rp 300 trillion in bonds to be issued as part of bank
recapitalization in Indonesia, only a small portion would
probably be resold on the debt market.

The government plans to issue over Rp 150 trillion in bonds to
recapitalize banks, beyond the Rp 140 trillion in bonds to be
issued to replace current central bank credits.

Of the bonds to be issued to recapitalize banks, "a portion
may be allowed to be sold on the market by the banks, depending
on the liquidity of each individual bank, but it would have to be
done in a very careful manner so it wouldn't impact too much the
bond market...It would have to be a small amount," Sjahril said.

He added he expected any bonds sold on the market to be bought
up largely by domestic investors, but added that international
investors should not be excluded.

Asked whether he thought there was truth behind a rumor
stemming from recurring press reports in Indonesia that the
government plans to merge five large private banks - listed Bank
Niaga, Bank Lippo, Bank Bali, Bank Universal, and unlisted Bank
Bumiputera - Sjahril said, "I don't think so."

He added that he hadn't seen the proposal on the bank mergers,
but speculated that whoever came up with the proposal had leaked
it to the press as a test balloon.

Bank Indonesia Director Dono Iskandar and other Indonesian
officials are meeting international bankers Tuesday, under the
aegis of the London Club of private creditors, in order to try to
move forward on negotiating the rescheduling of between US$2
billion and $4 billion in interbank debt maturing between April
1, 1999, and Dec. 31, 2001.

Sjahril, who won't attend that meeting in London, said he felt
the appropriate structures were now in place to move forward on
interbank and corporate debt issues, but said, "creditors and
debtors must come together and creditors must agree among
themselves (on a common framework for debt restructuring) before
they can come to agreement with debtors."

In particular, Sjahril noted that not all international
bankers agree on granting so-called "haircuts" to reduce
Indonesian corporate debt.

Indeed, as well as the reluctance of Indonesian companies to
start talking to their bankers, another obstacle is the
reluctance of banks to write off debt, or give "haircuts" to
Indonesian companies on some debt and then agree to restructure
the rest. Breaking that deadlock is seen as crucial to nudging
the restructuring process on.