U.S commends Indonesia's measures to stabilize rupiah
JAKARTA (JP): The U.S. undersecretary of state for economic affairs, business and agriculture, Stuart E. Eizenstat, yesterday commended Indonesia's prompt action to stabilize the rupiah.
Eizenstat said Bank Indonesia had acted appropriately by widening the intervention band from eight to twelve percent to discourage speculation on the currency.
He also commended Bank Indonesia's earlier moves to restrict loans to the property sector to dampen speculation in the real estate market.
"That has already had very positive effects on the market," Eizenstat told a press conference here yesterday.
The Indonesian rupiah has been recovering against the U.S. dollar with the spot price quoted at 2,572/2,576 yesterday afternoon, compared to 2,665 on July 21 when the rupiah plunged to its lowest level this year.
Eizenstat said targeting economic fundamentals was the solution to currency fluctuation problems.
"We commend countries such as Indonesia which take quick and decisive policy action. That is the way to deal with problems, not looking for scapegoats," Eizenstat said.
Eizenstat countered Malaysian Prime Minister Mahathir Mohamad's recent claim that speculators have deliberately undermined local economies by engineering currency volatility.
He said Mahathir's allegation was baseless, arguing that currency fluctuations in the region were driven by problems with economic fundamentals rather than by speculation.
"We have carried out studies in 1992 in the wake of the European currency fluctuation problem, and then in 1994 following the Mexican peso crisis. In each case, it's absolutely clear that neither was caused by speculators," he said.
He said regional currency instabilities had emanated from the strained economy of Thailand. Financial markets detected problems and reacted accordingly.
Financial services
"Speculators take advantage of the trends and make money. Of course they will, but they do not cause the trend. What caused this particular problem was fundamentals, economic issues," Eizenstat said.
Eizenstat said his government wanted Indonesia to lead the concluding round of financial services negotiations at the World Trade Organization (WTO).
He contended that the United States would be unable to conclude a financial services agreement without a critical mass of developing countries like Indonesia and it's ASEAN partners making offers over transitional periods.
"We're hoping that Indonesia will take the same kind of leadership role in the financial services negotiations, which have twice failed, as it did in the Information Technology Agreement (ITA)," Eizenstat said.
Indonesia was the only developing country to sign the ITA at the first WTO ministerial meeting in Singapore last year. Some 40 countries, including some developing countries, have signed the agreement.
Indonesia would have to further deregulate the financial services sector and bind this to WTO practice to take up the leadership role urged by the United States Eizenstat said.
"We have made an offer to immediately open our market to foreign competition at the earliest possible date," Eizenstat said.
He said the U.S. position was respected by many Indonesian officials but faced resistance in some quarters.
Indonesia's quest to build a more sophisticated economy, will call for a better-regulated and open financial sector, he added.
"Indonesia will recognize the value of this and by September we will get a better offer, so that we can reach an agreement by December," Eizenstat said. (rid)