Jakarta considers pegging rupiah to US dollar
World Bank admits underestimating impact of corruption
[JAKARTA]
Bank Indonesia Governor Soedradjad Djiwandono said yesterday that the
government is considering establishing a currency board that would peg
the rupiah to the US dollar.
"We're still studying the idea," Mr Soedradjad said to reporters after a
lunch meeting with Trade and Industry Minister Tunky Ariwibowo and World
Bank president James Wolfensohn, who's in Jakarta for a two-day visit.
Johns Hopkins economist Steve Hanke, a leading proponent of this method
of managing currency, met with Indonesian President Suharto earlier this
week.
A currency board replaces the role of a central bank, and maintains the
peg between a local currency and the dollar by backing a country's total
currency supply with US dollars. It's the system of currency management
that's kept the Hongkong dollar pegged to the US dollar since 1983.
One drawback, though, is that it requires a country to give up some
control of domestic interest rates. It would also require Indonesia to
add tens of billions of dollars to its national reserves.
Mr Wolfensohn, stressing the caring face of international finance, said
yesterday that the World Bank was accelerating funding to assist
Indonesia's poor in the current economic crisis. He toured a
densely-populated slum area of north Jakarta adjoining a container port
and announced an agreement with the government to speed up a
labour-intensive employment scheme.
"The programme is intended to create more than 75 million days of
low-wage jobs during the remainder of 1998," he said in a statement.
But he admitted that the bank "made mistakes" in its analysis of
Indonesia's debt problems and underestimated the economic impact of
pervasive corruption.
Along with most aid agencies, it also failed to appreciate the scale of
the private corporate debts which helped wipe out four-fifths of the
rupiah's value in the past year.
Mr Wolfensohn is in Indonesia to discuss its US$4.3 billion (S$7.2
billion) contribution to the US$40 billion package put together by the
International Monetary Fund.
He refused to comment on calls for political reform, arguing that his
brief was only an economic one. Nor could he be led to say what changes
the Bank may make to its policy on Indonesia.
Still, as Indonesia's economic problems escalate into a challenge to the
32-year rule of Mr Suharto, Mr Wolfensohn chose to meet more than 70 of
the government's most prominent critics before seeing the president
himself.
Several government critics told him yesterday that economic reform won't
work unless the political system is changed too. The present system is
geared to interpret the will of Mr Suharto, and corruption arising from
the links between political and economic power is endemic. That won't
change without democratic reforms, they said. -- Bloomberg, Reuters |
