Jakarta – Indonesia's central bank said on Friday it expects to keep raising interest rates to help ease inflationary pressures stemming from the battered rupiah, but hoped the rise would not be too high.
The rupiah's recent fall through 10,000 to the US dollar has unsettled officials, fearful that imported inflation could raise prices for Indonesia's millions of poor and spark more social unrest across the embattled country. The rupiah weakened 3.41 percent on Friday to trade at 10,250 to the US dollar.
"It would appear that interest rates must be increased from now to help ease inflationary pressures which have resulted from the recent weakening in the rupiah," Bank Indonesia deputy governor Miranda Goeltom told Reuters.
Central bank governor Sjahril Sabirin later told reporters the bank hoped it would not have to raise interest rates too high and reiterated that intervention in the foreign exchange market would hopefully boost the battered rupiah.
Indonesia's 2000 year-on-year inflation rate was 9.35 percent. The government has forecast the 2001 figure at just over seven percent.
On Wednesday, the central bank's benchmark one-month SBI certificates rose to 14.97 percent from 14.83 percent at the previous week's auction of the paper.
Goeltom said, however, that an interest rate rise would not necessarily strengthen the rupiah – one of the world's worst performers in recent years and which has been buffeted by a steady diet of political instability and dollar demand.Rais is former leader of the second largest Muslim organisation, Muhammadiyah, which has traditionally been at loggerheads with the NU.
"Day by day, this conflict is enlarged ... and if social conflict comes, the military will govern again and all the democratic movement in Indonesia will come to a stop," Muzadi said after a crisis meeting with Muslim leaders from across East Java. "There are a lot of dangerous things behind these games."
But Wahid has gained some ground in his battle with Rais. This week, Rais was forced to concede that his attempts to speed up procedures to impeach Wahid would be unconstitutional. Also two ministers he ordered to quit Wahid's cabinet or be expelled from his party chose to stay with the president.
And on Thursday, Wahid sacked his forestry minister, who is a member of the loose coalition trying to push Wahid from power.
Wahid officials said that when he does respond to a parliament censure over two financial scandals – which has to be by May – he will plead his innocence.
If he was pushed from office, his replacement – almost certainly Vice-President Megawati Sukarnoputri – would inherit a poisoned chalice of uncontrollable civil unrest that would lead to an army takeover, Muzadi warned.
If Wahid and his enemies could not end the power struggle, a fresh national election should be called, he added. But that offers no obvious solution.
At the last general election in mid-1999, the most successful party – Megawati's – won barely a third of the votes, creating a splintered parliament and forcing Wahid into unlikely alliances to win the presidency a few months later. Indications are the next election, whenever it is held, will be just as inconclusive.
The risk of widespread bloodshed, which has spooked financial markets, is real. NU supporters have clashed with anti-Wahid protesters in Jakarta and destroyed buildings belonging to the former ruling Golkar party, headed by another key figure in the anti-Wahid movement.
On Thursday, thousands of NU protesters torched a Golkar building and a car in the town of Banyuwangi, near Malang. It was the latest in their attacks on the Golkar party.
The NU sources say the organisation is likely to go ahead with its mass callout next Tuesday, putting well over a million people on the streets of the Indonesian capital, already jittery after weeks of pro and anti-Wahid protests.
The simmering instability and the constant threat it could explode into violence has mauled financial markets, driving the rupiah and stocks to two-year lows earlier this week.