Jakarta announces rescue package

Rupiah crisis: Measures include export incentives, spending cuts

THE Indonesian government yesterday announced a 10-point rescue package, including export incentives and spending cuts, to maintain economic stability in the wake of the rupiah crisis.

Finance Minister Marie Muhammad, who unveiled the package to reporters after a Cabinet meeting here attended by President Suharto, said that the government would take steps to reduce imports, encourage exports and restore stability to the currency market.

“To prevent the currency turmoil from leading to an economic crisis, Indonesia needs to take credible pro-active measures that will anticipate future problems,” he said.

“All measures and policies undertaken by the government are intended to improve the endurance of the national economy and safeguard the results of national development.”

Mr Muhammad, who was joined at the press conference by Central Bank governor Soedradjad Djiwandono and Information Minister Raden Hartono, said that the aim of the measures was to boost exports to get more foreign funds into the country.

“Efforts to increase exports should be considered as a first priority,” he stressed.

He said that the government was studying various export incentives, including cutting import taxes and goods important to export industries.

It was also planning to slow import growth by raising taxes on luxury goods “that are not essential for development”, he said.

To encourage foreign investment, he said that the government would abolish a 49 per cent limitation for foreign investors to buy IPO shares.

He said that as a result of the unexpected economic slowdown this year, tax revenues would fall, prompting the government to cut its spending plans. “As a consequence of a smaller budget, some government projects will have to bepostponed or re-scheduled,” he said.

He said that another significant measure to be taken would be the lowering of interest rates which had threatened to choke off economic growth.

He said that the government had begun to ease gradually the tight monetary policy it had adhered to since the rupiah was floated last month.

Indonesia, along with Thailand, the Philippines and Malaysia, has in the last few weeks reeled under the assault of speculators, who have forced central banks to abandon efforts to prop up their currencies.

In the last two months, Bangkok, Manila and Jakarta have allowed their currencies to float. The baht, peso and rupiah fell promptly to record lows with repercussions for the Singapore dollar and Malaysian ringgit, as well as stock markets region-wide.

Central Bank governor Soedradjad Djiwandono said that Indonesia’s foreign reserves had dropped by US$690 million (S$1 billion), or 3.3 per cent, last month from July as the country spent money to prop up the rupiah.

Reserves fell to US$20.37 billion in August from US$21.07 billion in July.

The stock market responded positively to the government announcement, with share prices rising sharply. Indonesia’s benchmark stock index surged 7.01 per cent – its biggest one-day gain in almost four years.

The index closed up 33.57 points at 512.59 points after the package was unveiled, although some brokers said that the surge may be overdone.

The rupiah fell to as low at 3,060 before the central bank of Indonesia was rumoured to be stepping in, bringing the unit up to around 3,000 by mid-afternoon, but it closed at 3,025, slightly better than Tuesday’s close of 3,030.

Economic observers said that the government was moving in the right direction to maintain economic stability.

“Overall, it’s a good package,” said Mr Stephen Rogers, head of research for UBS Securities Indonesia. “It is a good confidence booster and once again reaffirms Indonesia’s crisis management ability.”


* Synchronise various economic sectors.
* Reduce interest rates gradually.
* Revise government budget.
* Postpone or re-schedule some government projects.
* Get private sector to prioritise and postpone projects.
* Boost exports by providing facilities for exporters.
* Review projects of state-owned enterprises.
* Liquidate insolvent banks.
* Abolish 49 per cent limitation for foreign investors to buy IPO shares.
* Protect essential goods and stabilise prices.

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