>what does this bit mean: >"During a meeting between the IMF and the
>Indonesian Democratic Party of
>Struggle (PDI Perjuangan) it was concluded that implementing a fixed
>exchange rate was risky because of the lack of forex reserves," he said.<
>
>what are forex reserves?
Foreign exchange (FX) reserves held by a central bank.
> and why would they be related to fixing or not
>exchange rates?
FX reserves, measured typically as the number of months of normal imports they could pay for, are a sign of economic resilience. A country that lacks sufficient FX reserves can run into a payments crisis, unable to come up with the scratch to pay for oil or service debts; often it's a lack of FX reserves that drives a country into the arms of the IMF. (I was at a IMF/World Bank-bashing conference a few years ago with a former finance minister in Manley's Jamaica who interrupted the proceedings to exclaim, "You have no idea what it's like to have to come up with $100 million next week!") FX reserves are also important for defending a currency against speculative attack (though the defenses don't have a great record of success). If there are no reserves, the central bank can't defend the currency by buying it up - e.g., dipping into dollar or euro reserves to buy rupiah in order to prop up the exchange rate.
Doug