Indonesia's healthy rupiah may lose weight

PHOTO

The Indonesian economy is going well, but the rupiah is thought to be overburdened with noughts. [AFP]

Christine Webster

Last Updated: Thu, 5 Aug 2010 21:54:00 +1000

Indonesian business transactions can run into the trillions, with a confusing number of zeros at the end of figures.

Now the central bank is considering adjusting the rupiah to simplify it all.

The bank says it wants to reduce the number of zeros in business transactions by reducing the exchange rate with the US dollar from about 9,000 rupiah to just nine.

The Central Bank governor, Darmin Nasution, says the measure should not be confused with devaluation.

Indonesia's rupiah is considered one of Asia's best performing currencies, although during the 1997-98 financial crisis it fell significantly.

Good time

Mr Nasution told Radio Australia's Asia Pacific program now is a good time to redenominate the rupiah, and he says people need to be reassured that the proposed measure would be the opposite to devaluation.

"This is not devaluation, it's the redenomination of the rupiah," he said.

"Devaluation always takes place when the economy of a country is not stable. With a high inflation rate.

"As a result of this high inflation rate, the value of the currency decreases rapidly, therefore it's necessary to cut the currency.

"What we propose, it's completely the opposite of devaluation.

"Redenomination of a currency can only be done or can be done successfully when the economy is stable, meaning the economy is growing and the inflation rate is under control."

The senior economist at the Standard Chartered Bank in Jakarta, Fauzi Ichsan, says it is not the first time re-denomination has been suggested for the rupiah.

He says the economic climate could be ready at last for such a measure.

"It is a good time to do it with the economy on the rise."

Calculator

Mr Ichsan says changing the calibration of Indonesia's currency will simplify business transactions.

He says when you are dealing with large amounts of money, sums involving the rupiah can end up in the trillions and it is not possible to use a calculator for so many zeros.

Indonesian Senior Economic Minister Hatta Radjasa says it is only a proposal by the bank at this stage and needs government approval.

Redenomination will involve changing the coins and notes.

The bank is aiming to implement the changes within the next five years, but says it is more likely it could come into effect by 2020.