Liquidity eased<\/p>\n
Bank Indonesia, the central bank, has moved again to gradually
\nease the credit crunch which has gripped businesses since July
\neven though the rupiah exchange rate remains highly volatile,
\nabove Rp 3,600 against the U.S. dollar. Bank Indonesia,
\napparently, has realized that the credit pinch has outlived its
\nusefulness as a deterrent against speculative attacks on the
\nrupiah. The tight monetary policy has, instead, begun to claim
\nvictims in the private sector. And if this condition continues
\nmuch longer, the currency turmoil may worsen into a real
\nfinancial crisis, a chain of bankruptcies and painful recession.<\/p>\n
On Monday, Bank Indonesia took four measures designed to
\ninject more liquidity into the economy and reduce the costs of
\nfunds. It reopened short-term money market securities, which were
\nclosed in July, and cut the minimum reserve requirement for
\ndollars from 5 percent to 3 percent. The central bank introduced
\na preshipment rediscount facility to exporters and further
\nlowered its benchmark interest rates (Bank Indonesia Certificate
\nrate) by one percentage point. Even though the interest rates
\nremain high, ranging from 14 percent to 20 percent for papers of
\nup to three-month maturity, they are already much lower than
\nthose in August, when the rates reached as high as 30 percent.<\/p>\n
It is obviously economically unfeasible for the monetary
\nauthorities to bring the interest rates back down to the levels
\nbefore the beginning of the currency crisis in early August. The
\nrelaxation of the money pinch should be made gradually,
\nespecially because the rupiah has yet to settle at its market
\nequilibrium rate.<\/p>\n
The reopening of the money market securities is quite helpful
\nbecause it will inject new liquidity directly into the market.
\nThe preshipment financing facility also will greatly help
\nexporting companies to manage cash flows because the loans can be
\nused for financing production operations. The reduction of the
\nforeign exchange reserve requirement will increase dollar supply
\nto the money market. Bank Indonesia estimated this measure would
\nrelease about US$850 million to the domestic banks' funding base
\nto support dollar loans to businesses. The lowering of interest
\nrates will further contribute to cutting down the costs of funds.<\/p>\n
The latest measures seemed to be the most the central bank
\ncould do now to improve the economic liquidity amid the rupiah
\nvolatility and the speculations about the likely outcome of the
\ngovernment-IMF negotiations for an aid package to stabilize the
\nrupiah. The central bank hoped that additional dollar supply
\nwould help reduce the pressures on the rupiah caused by the
\ndemand from businesses which need dollars to service foreign
\ndebts.<\/p>\n
However, given the latest threats of another fallout of the
\ncrisis of confidence in Thailand's economic reform measures, the
\nmonetary authorities now cannot do much to stem the rupiah
\nvolatility. Whatever measures the central bank may take to help
\nstabilize the rupiah will likely fail because the market is now
\nwaiting to see what kind of aid package will come out of the
\ngovernment-IMF negotiations, and what will be the conditions
\nattached to the assistance.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/liquidity-eased-1447899208",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}