BI forex measures deemed inadequate by analysts<\/p>\n
JAKARTA (JP): Bank Indonesia's (BI) latest move to control
\nbank foreign exchange deposits and liabilities might be
\nineffective in preventing a further plunge in the rupiah as well
\nas in restoring confidence in the banking sector, analysts have
\nsaid.<\/p>\n
\"It's meaningless,\" Hartojo Wignjowijoto of the Asia Pacific
\nEconomic Consultancy said yesterday.<\/p>\n
He said the central bank's move to impose ceilings on bank
\nforeign exchange deposits and liabilities was a mere public
\nrelations effort to show that Bank Indonesia, the central bank,
\nwas \"doing something\".<\/p>\n
The central bank Sunday announced ceilings on bank foreign
\nexchange deposits and foreign exchange non-trade and trade-
\nrelated liabilities, including letters of credit.<\/p>\n
BI and the Indonesian Bank Restructuring Agency (IBRA) also
\njointly announced ceilings on credit growth and interest rates as
\ninitial measures to restructure the Indonesian banking system.<\/p>\n
The new measures, however, were not meant to abandon the
\ncountry's free foreign exchange regime policy, said Mukhlis
\nRasyid, the central bank's managing director.<\/p>\n
He explained the move was to help revive the ailing banking
\nsector as well as to prevent irregularities that might result
\nfrom the government's decision to guarantee bank obligations to
\ndepositors and creditors.<\/p>\n
Edwin Syahruzad, a banking analyst at securities firm PT
\nPentasena Arthasentosa, said the new measures were expected to
\nminimize the high demand for U.S. dollars, which would, in turn,
\nlimit the rupiah's fall against the U.S. greenback.<\/p>\n
\"The policy will only create an outflow of dollars,\" Hartojo
\nsaid, pointing out that people would no longer put their dollars
\nin domestic banks.<\/p>\n
\"They (BI) think it is the bankers who control the market.
\nWell, they're wrong,\" he said.<\/p>\n
He stressed the policy would only strengthen poor public
\nconfidence in domestic banks.<\/p>\n
Other analysts said they were not surprised by the new bank
\ncontrols.<\/p>\n
Ferry Hartoyo, a banking analyst at PT Vickers Ballas Tamara,
\nsaid that even without the new measures, demand for dollars and
\nloans had already dropped because of the current slump in the
\neconomy.<\/p>\n
He said there were signs of slowing importer demand for
\nopening letters of credit while corporations were not servicing
\ntheir foreign debts.<\/p>\n
\"Everyone is in a consolidation process. So demand for loans
\nis also slowing. There will be a contraction this year,\" he said.<\/p>\n
\"The new measures will only help a little in restoring
\nconfidence in the banking sector,\" he said, adding that despite
\nthe government's deposit guarantee, people were still keeping
\ntheir money either at state or foreign banks, or under their
\nmattresses.<\/p>\n
He said the important factor in reviving the ailing banking
\nsector was to find ways to solve its huge bad debt problem. \"The
\npolicy on this matter is not clear,\" he said.<\/p>\n
\"The bad loan problem is much more critical than the foreign
\ncorporate debt crisis,\" he said.<\/p>\n
He explained that if the bad loans were not recovered, banks
\nwould remain financially unsound. \"The banks have been operating
\nwith income interest levels less than the interest rate being
\npaid to customers,\" he said.<\/p>\n
Hartojo agreed. \"BI has been inept in dealing with the real
\nproblems,\" he said.<\/p>\n
He explained that the central bank had only solved a third of
\nthe factors creating the current financial crisis and that the
\nInternational Monetary Fund's solutions were inadequate.<\/p>\n
\"The IMF programs only serve the rich countries' interests,\"
\nhe said.<\/p>\n
He said BI's weak monetary policy had been a major cause of
\nthe current banking problems, pointing to special credit
\nprivileges given to well-connected businessmen, legal lending
\nlimit violations, corruption, low economic capacity and high
\ndomestic consumption with a weak distribution sector.<\/p>\n
Following the sharp rupiah depreciation and the liquidation of
\n16 banks in November, confidence in the banking sector has waned.
\nThe public withdrew deposits and foreign banks became
\nincreasingly reluctant to accept letters of credit from their
\nIndonesian counterparts. The economy almost came to a halt.<\/p>\n
As an initial step to rebuild confidence in the banking
\nsector, the government announced last week that bank obligations
\nto creditors and depositors would be guaranteed.<\/p>\n
IBRA was also introduced with the mission to oversee banking
\nrestructuring programs. (08)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bi-forex-measures-deemed-inadequate-by-analysts-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}