Soeharto yet to decide on CBS

JAKARTA (JP): President Soeharto has not yet made any decision on a fixed exchange regime as he is still studying its advantages and disadvantages, an International Monetary Fund (IMF) official said yesterday.

But the President has reaffirmed his strong commitment to the IMF-brokeraged 50-point reform package he signed on Jan. 15, added Prabhakar Narvekar, an IMF liaison official, after a meeting with Soeharto.

"He has not postponed it. He said he is studying it, his officials are studying it, he is discussing it with me and with everybody," Narvekar said.

He was replying to reporters' questions as to whether the President had decided to postpone the plan on a fixed exchange rate under a currency board system (CBS), as reported by the foreign press.

Narvekar said IMF was not against the government's plan on the fixed exchange rate itself because IMF had a lot of experiences with other countries using the fixed exchange regime.

He said the IMF's concern was only about the timing and the precondition required for the system.

"Nothing in principle is against the CBS. We just want to see the timing is right and situation is there," Narvekar noted.

Asked what would be IMF's solution to Indonesia's economic crisis, he responded: "To our view, continuing with the IMF agreement is the best".

"I am sure rupiah will strengthen. I have no doubt," Narvekar said.

The rupiah has lost more than 70 percent of its value against the American dollar since July, and the government, impatient with the apparent inability of the IMF program to stabilize the rupiah at a higher rate, decided early this month to look into a better alternative -- a fixed exchange rate under CBS.

But the IMF and many Western countries have criticized the Indonesian government's plans for a currency board, saying Jakarta should first push through banking and other structural reforms to restore confidence in the battered rupiah.

"At this very moment it is the view of the IMF, supported by the entire world community, that the currency board medicine would kill the Indonesian patient," IMF Managing Director Michel Camdessus said on Tuesday.

On Wednesday, German Finance Minister Theo Waigel repeated a warning to Indonesia not to go ahead with plans to adopt a currency board to try to overcome its worst economic crisis in decades.

Representatives from the IMF are in Jakarta to review economic reforms agreed in exchange for the US$43 billion rescue package.

Narvekar said the team of visiting officials would continue to discuss the IMF program with Indonesian officials in coming days.

In Washington, World Bank chief economist Joseph Stiglitz and IMF research director Michael Mussa said on Wednesday the worst of the Asian financial crisis had passed apart from Indonesia.

"I think in terms of the (Asian) financial crisis we have seen the bottom, leaving aside Indonesia," Mussa was quoted by AFP as saying.

House support

In a related development, all the four factions at the House of Representatives expressed yesterday full support for the government plan on a fixed exchange rate for the rupiah either under CBS or other arrangements.

"The government should aim for an exchange rate of Rp 5,000 per U.S. dollar, as envisaged in the state budget for 1998/1999," said Laode Kamaluddin of the Golkar faction at the House plenary session with Finance Minister Mar'ie Muhammad.

Kamaluddin, delivering Golkar's final views on the budget, said his party appreciated views from international institutions such as the IMF based on mutual respect but he insisted that the policy-making power remained vested with the government.

The Moslem-oriented United Development Party (PPP) faction supported the Golkar view, saying that if all the preconditions for a CBS could be met and the risks of this system were much smaller than those under the present system, the government should immediately prepare the legal framework for the fixed exchange regime.

"The PPP will fully support and accept the implementation of the CBS," PPP spokesman Kaoy Syah told the plenary session.

Djatmikanto of the Armed Forces faction asserted that a stable exchange rate was crucial for creating business certainty and in this context CBS seemed to be the best mechanism to achieve rupiah stability.

"The Armed Forces faction therefore supports the introduction of CBS after thorough preparations," Djatmikanto added.

Markus Wauran, spokesman for the Indonesian Democratic Party faction, joined the call for a fixed exchange rate under a CBS or other arrangements.

"Whatever system will be implemented, we will support it as long as it can restore stability to the rupiah rate," Wauran added. (prb/rid)