Monday, 24th July 2017

Central bank warned over rupiah re-denomination

5th August 2010 | 574 Views
Jakarta (ANTARA News) - Different quarters have given mixed reactions to the discourse over the possibility of re-denominating the country`s rupiah currency, saying that Bank Indonesia (BI/the central bank) should exercise extra-careful consideration before it takes a decision on it.

"Bank Indonesia should not hastily re-denominate the rupiah currency which could cause a wide impact and disadvantage to the people`s interest," Ade Komarudin, chairman of SOKSI, a labor organization affiliated to the Golkar Party, said.

He said that as a monetary institution BI had to carry out a comprehensive and careful study about the impact of the policy and should not force itself to implement it if it would create turmoil in society.

Komaruddin said it was not the correct time now to re-denominate the rupiah because it was a very sensitive matter to the people.

Democrat Party politician Tengku Dirkhansyah Abu Subhan Ali concurred Komaruddin`s view saying that it was not yet the correct time to apply the policy as it could cause panic in society.

"Now is not the time to re-denominate the rupiah. The people consider that re-denomination is the same as `sanering` (a Dutch word meaning slashing the rupiah), though it is two different things," he said.

Tengku Dirkhansay, who is popularly called Dicky, said that BI had to have at least two main reasons before it could re-denominate the rupiah, namely stable inflation and enough foreign exchange reserves.

He said that re-denomination could only be carried out if inflation was stable under the 5 percent level while the inflation in the country was still expected to reach over 6 percent.
It should be ascertained that inflation was below five percent in a four consecutive years.

In the meantime, the government must assure that foreign exchange reserves should be stable at between Rp100 trillion and Rp200 trillion. At present, Indonesia`s foreign exchange reserves were only about Rp76 trillion.

Besides, Dicky said, the confidence level of investment should be high while in Indonesia this confidence was still low. "Sometimes the investment trust is high but more often it is low, or even distrust often surfaces," he said.

However, Eddy Suratman, economic professor of the Pontianak-based University of Tanjungpura, said re-denomination was good for Indonesia in the future. "The benefit of re-denomination is the equality of the rupiah to other currencies ," Eddy Suratman said on Wednesday.

He said he often felt inferior over seas when he compared the value of the rupiah with that of other currencies. Therefore, re-denomination is good in the future.

On Wednesday for example, the local unit traded Rp8,938-Rp8,948 per US dollar.
"But with a ten year plan by BI to impose the policy, there would be enough time to discuss the advantageous and disadvantageous aspects that should be taken or avoided," he said.

Thus, now is not yet the time to carry out the policy. According to economic observer Vincent Gaspersz of the Lupang-based Widya Mandira Catholic University (Unwira), it is not yet the correct time for the re-denomination of the rupiah because the people would respond to it negatively.

"Negative response will create irrational actions which would have bad impact on the country`s economy due to the past traumatic economic experience," Vincent Gaspersz said.

He said that the policy would re-denominate the rupiah without reducing its value but by downsizing the digits, for example, Rp1,000 into Rp1. Its aim is to simplify the figures for the payment of goods and services and for the accountancy payment system.

In the meantime, Finance Minister Agus Martowardojo said on Wednesday that the
re-denomination discourse was still under the study of Bank Indonesia (BI) and the government had not taken any official decision.

"The matter is still under a study by BI and not yet final. BI has not yet consulted about the matter with us so that we could not say anything. It is still under a study and would take a long ," the minister said.

The same thing was voiced by Vice President Boediono. "It (rupiah re-denomination) is a mere study being carried out by Bank Indonesia and it is indeed something in the domain of the central bank," he told newsmen.

On when the study would be finished and implemented in Indonesia, Boediono said the government still had to wait for its results and if they were already definitive there would still be a long process before it was implemented. "Indeed some countries have already done it such as Turkey. It is still being studied by BI and again it is still something under study and will not yet be implemented in the near future," he said.

According to Difi A Johansyah, BI head of public relations, the plan to plan to re-denominate the Rupiah is still in the form of a study done in connection with the implementation of regional schemes such as the ASEAN community.

"It is a study we are carrying out in the framework of integrating economies in one region such as the ASEAN community and facilitating transactions. It is still an initial study done to see its prospects and the possible existence of opposition," Difi A Johansyah said.

He said re-denomination was different from the currency reform once done by Indonesia. It must be prepared over a long period and in a thorough way, including its familiarization based upon the needs of the people and the economy to avoid a negative impact that would hurt the people.

"If it is really to be carried out, its benefit must really be felt. Therefore, until now the issue is still a mere topic of study and research by Bank Indonesia," he said.(*)