Amy Chew, Jakarta – Indonesia's flirtation with a currency board system to prop up its ailing rupiah failed to carry through to reforms agreed by the government and the International Monetary Fund to tackle the country's economic crisis.

In sweeping measures unveiled on Friday, the government said: "Bank Indonesia intends to adjust interest rates as necessary to strengthen the rupiah."

No mention was made of the controversial currency board which was opposed by the IMF, the United States and leading European countries after it was first put forward in January.

Under the proposal, the rupiah was expected to be pegged at between 5,000 and 6,000 to the dollar, and supposedly backed by foreign exchange reserves fully matching funds in circulation.

The scheme was viewed by critics as unrealistic given the fragile state of Indonesia's banking sector and its paucity of foreign reserves.

In the meantime, other options were also looked at.

Indonesia's central bank governor Sjahril Sabirin said he had briefly considered the idea of a return to pre-set trading bands for the rupiah.

On Thursday, Sabirin said the trading band option was not discussed during negotiations with the IMF.

"We did not discuss this (trading band) or whether the rupiah would continue on a free float," he said in reply to questions following the inauguration of two new central bank directors.

He said the central bank had no plans to raise interest rates for the moment as the rupiah had strengthened.

"But if it (rupiah) were to weaken, we may raise rates," he said.

Spot rupiah ended at 8,050 against the dollar in late trading in Jakarta on Thursday, but strengthened overnight to about 7,750 in New York after details of the reform agreement leaked.

The governor also made no mention of the currency board system, which had been pushed by Steve Hanke, a professor of economics at John Hopkins University in Baltimore and an adviser to President Suharto. The memorandum on reforms, however, stressed a commitment to choke off easy access of funds to banks.

This will be done through the introduction of lending facilities by Bank Indonesia with interest rates set at levels designed to discourage banks from turning to the central bank for funds.

The IMF's director for Asia-Pacific Hubert Neiss had said on Thursday that liquidity needed to be tightened, including to banks.

He said this was a necessary "anti-inflationary shock" in the face of hyperinflation.

"This is what people call 'stopping the printing presses".

The memorandum said the wide-ranging reforms were aimed at bringing the rupiah to about a level of 6,000 over time.

The IMF's deputy chief Stanley Fischer has said this was a feasible target.

"We don't think the rupiah is going to reach a new level on the day we sign the programme...the markets will take time to be persuaded," he told Reuters in an interview on Sunday at the end of a three-day visit to Indonesia.

"That 6,000 (level) is possible with a tight monetary policy, with a steady implementation of the programme, with the beginnings of a return of confidence, yes that is feasible.

"But it won't happen in the beginning. It will take time, just as it has in other countries," he said.