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Indonesia's president has no quick fix for sliding rupiah |
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May 16, 2000
JAKARTA, MAY 15 (AP) - President Abdurrahman Wahid said Monday the government has no plan to intervene in financial markets to prop up the rupiah currency, which hit a seven-month low last week.
The rupiah fell against the U.S. dollar again after Wahid's comment to journalists at the presidential palace.
The markets had expected intervention because Wahid said Friday that he would take action Monday to boost the rupiah if it continued to slide after losing 9 percent of its value against the dollar late last week.
But on Monday, he said: "I didn't really say that I would take action to help boost the rupiah." By midday, the currency had slid nearly three percent in value to 8,695 rupiah to the dollar.
Wahid also denied speculation that the government was considering some form of capital controls, saying that such action would go against an agreement the government has with the International Monetary Fund.
The slide of Indonesia's currency poses a serious threat to Wahid's eight-month old reformist government in its quest to boost the debt-ridden, debilitated economy and to implement further democratic reforms.
Last week's slide caused scenes reminiscent of the Asian financial crisis three years ago, which plunged Indonesia's economy into its worst crisis in a generation. However, several key economic indicators still show the country is experiencing strong growth overall.
Indonesia's economy grew 5 percent in January and February from a year ago, while interest rates are low and inflation is still sitting at an acceptable 4.8 percent.
Despite this, the rupiah's value has been driven down by a combination of expectations of higher U.S. interest rates and a confusing barrage of comments by top Indonesian policy makers.
On Monday, Wahid blamed the weakness of the currency on violent demonstrations in the capital on Friday and Saturday, during the two-year anniversary of riots which led to the downfall of former dictator Suharto.
The first was led by students demanding that Suharto be tried for alleged corruption during his regime. Saturday's started in Chinatown in a dispute over the removal of street vendors selling pirated CDs.
But currency dealers in Jakarta said Wahid's conflicting comments Friday and Monday are evidence of policy paralysis within the government and indicative of the lack of understanding it has as to how to communicate with the financial markets.
Last week, Finance Minister Kwik Kian Gie said that while the economy is recovering, most conglomerates are still burdened with huge debts and corruption remains a major problem.
He also said, "If I were a foreign investor, I wouldn't come to Indonesia. The law enforcement is not there, but not only that, the whole thing is so confusing."
Kwik also criticized Wahid for appointing several economic councils and advisory groups, leading to inconsistent and sometimes absurd proposals such as a 125 percent tax on imported rice.
He said "the way the government is managed" has discouraged foreign investors from considering Indonesia.
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