Distortions must be removed to restore rupiah stability<\/p>\n
JAKARTA (JP): Economists warned yesterday the current
\nliquidity crisis could drag on and worsen if the government did
\nnot abolish market distortions to facilitate the smooth
\ndistribution of goods.<\/p>\n
They saw the rebound in the rupiah rate over the last few days
\n(from its historic low last week) largely as a result of the
\nskyrocketing of Bank Indonesia Certificate (SBI) rates to 30
\npercent.<\/p>\n
"The current financial crisis could worsen within the next few
\nmonths if the numerous market distortions such as monopolistic
\npractices are not removed," analyst Sjahrir told the Managing
\nEditors' Discussion Forum.<\/p>\n
"Hence, I think, the government's long-awaited move to slash
\nthe trading monopolies of the National Logistics Agency (Bulog)
\nis a key to normalizing the financial sector," Sjahrir added.<\/p>\n
The rupiah, which rose 11 percent over the past two days on
\nthe back of punitive interest-rate increases, slipped to 2,750
\nagainst the dollar from 2,670 at the previous day's close. It
\nclosed at 2,700 yesterday.<\/p>\n
In a related development, President Soeharto yesterday ordered
\nall cabinet ministers to closely monitor the developments in the
\nrupiah rate.<\/p>\n
Coordinating Minister for Economy and Finance Saleh Afiff
\nannounced Wednesday that he and several other ministers were
\npreparing a set of new measures to abolish Bulog's trading
\nmonopolies in food commodities, except rice. The government plans
\nto end Bulog's monopoly in wheat flour, soybeans, sugar, garlic
\nand onions.<\/p>\n
But Afiff admitted the cabinet had yet to reach a consensus on
\nthe necessity of the planned bold measures.<\/p>\n
Economists Sri Mulyani, Irzan Tandjung and Faisal Basri from
\nthe University of Indonesia's School of Economics, who spoke at
\nthe same forum, agreed the present financial crisis could not be
\ndealt with by simply tinkering with monetary policies.<\/p>\n
"I wonder why the macropolicy making machinery has been
\nworking overload while the micropolicy mechanism remains asleep,"
\nMulyani said.<\/p>\n
This anomaly, she said, has been responsible for the weak
\ncompetitiveness of the micro units of our economy.<\/p>\n
Basri conceded that "for years we have been living with too
\nmuch complacency, languishing in comfort with our success in
\nsteady high economic growth, in checking the inflation rate at a
\nsingle digit and managing our widening current account deficit
\nwith capital inflows".<\/p>\n
"We simply forget that our inflation has been higher than
\nother countries because our consumer price index is based on
\nhigher prices. Our growth has been fueled largely by consumption.
\nThe capital inflows have mostly been short-term funds which add
\nvery little to our production capacity," Basri noted.<\/p>\n
Sjahrir agreed, adding that "we now have to pay for what was
\nupheld by our monetary authorities almost to the point of a
\nparadigm that the rupiah's depreciation had to be lower than our
\ninflation rate".<\/p>\n
"If you study the development of our rupiah rate after the
\n1986 devaluation, you will find that the rupiah depreciated by an
\nannual average of only 3.25 percent between 1987 and 1996," he
\nsaid.<\/p>\n
The analysts called for public support of Minister Afiff's
\nteam which is now preparing a new package of deregulations to
\nremove market distortions.<\/p>\n
They said the liquidity crisis currently ravaging the economy
\nhad led the government to a point of no return. The government
\nshould push ahead with the long-delayed abolishment of all kinds
\nof market distortions, including institutional weaknesses and
\nadministrative rigidities.<\/p>\n
Sjahrir said monetary authorities could not sustain the
\ncurrent tight monetary policy much longer without turning what he
\ncalled "a mini crisis" into an economic crisis.<\/p>\n
"Significantly easing the money supply without gradually
\nfreeing basic commodities to market forces could prolong the
\ncurrency crisis with a devastating cost to the macroeconomic
\nstability," Sjahrir said.<\/p>\n
He said the monetary authorities should realize their
\nlimitations.<\/p>\n
"I don't think they can outsmart the market," Sjahrir said.<\/p>\n
He cautioned that the credit crunch, if allowed much longer,
\ncould drive many businesses to bankruptcy, thereby forcing a
\nlarge number of people out of work.<\/p>\n
"If this happens, political stability will be affected in the
\nrun up to the presidential election in March," Sjahrir cautioned.<\/p>\n
Irzan Tandjung foresaw another threat from the large amount of
\nprivate sector's foreign borrowings which is to mature this year.<\/p>\n
Sjahrir also observed that market expectations of the
\ncountry's economic outlook are no longer based on fundamentals
\nalone but have been influenced by other issues which previously
\nwere not given much consideration.<\/p>\n
"Such issues as good governance are now among the factors
\nwhich form the market expectations of an economy," he said. (vin)<\/p>\n
Currency -- Page 11<\/p>\n
Banks -- Page 12<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/distortions-must-be-removed-to-restore-rupiah-stability-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }