Dollar liquidity crisis<\/p>\n
Please allow me to take the liberty to comment on A way out of
\nthe liquidity crisis by Mr. C.J. de Koning which appeared in The
\nJakarta Post on Aug. 24 and Aug. 25. In the article the author
\nreduces the current crisis to a simple problem of U.S. dollar
\nliquidity.<\/p>\n
It is almost tempting to agree with that conclusion, however
\nif one digs deeper it becomes plain that U.S. dollar liquidity
\nproblems existed for many years before the crisis and so the
\nrecent liquidity problems are not an isolated event sparked by
\nthe sudden massive outflow of funds which followed the de facto
\ndevaluation of the Thai baht on July 2, 1998, after a sustained
\nattacks on it and other regional currencies by speculators.<\/p>\n
The U.S dollar liquidity \"crisis\", or external imbalance, has
\nexisted for decades and has been sustained by even larger inflows
\nof funds and short term and long term public and private sector
\nexternal borrowing. The external imbalance was therefore of a
\nchronic and systematic nature.<\/p>\n
The World Bank has praised this model of growth fueled by ever
\nincreasing external borrowing and christened it the Asian
\nmiracle, while apparently completely forgetting its own criteria
\nwhich mark a threshold beyond which countries are classed as
\nbeing dangerously indebted. These include:<\/p>\n
1. Total foreign external debt to GNP ratio of 50 percent.<\/p>\n
2. Total foreign debt to export ratio of 275 percent.<\/p>\n
3. Debt service to export ratio of 30 percent.<\/p>\n
4. Scheduled interest payment to export ratio of 20 percent.<\/p>\n
The rupiah crisis had been building up for quite some time.
\nThe country's budget deficit was financed with ever increasing
\nexternal borrowing and the domestic monetary base was expanded by
\nover 20 percent. Inflation was kept under control through the use
\nof subsidies and this and other administrative measures used to
\ncap prices served to discourage local production and led to a
\nvery heavy dependence on imports.<\/p>\n
The example cited by Mr. C.J. de Koning on Aug. 25 lacks
\ncredibility because often companies do not borrow money just to
\nfinance exports and not all companies take out loans of exactly
\nthe right size. They now face the aggregate of all external
\nloans.<\/p>\n
A solution can be culled from past crises which have hit other
\ncountries, including those in Latin America. Any solution should
\ninclude debt relief, debt rescheduling, debt buyback, debt equity
\nswaps, debt exchange and repackaged debt backed up with improved
\nmacroeconomic management and structural adjustment. Last but not
\nleast shattered domestic confidence needs to be restored.
\nOtherwise Indonesia will be just like a small boat sailing off
\ninto the rough international waters of the global era.<\/p>\n
Name and address<\/p>\n
known to the editor<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/dollar-liquidity-crisis-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }