Long-term capital inflows needed to shore up rupiah<\/p>\n
JAKARTA (JP): Indonesia needs policies at the moment that will
\nattract long-term capital inflows in order to shore up the rupiah
\nand revive the dying economy, economist Rizal Ramli and currency
\nmarket analyst Theo F. Toemion have said.<\/p>\n
Speaking at the relaunching of Sinar news magazine here
\nyesterday, they said the interest rates policy currently pursued
\nby the monetary authorities was not an effective way to
\nstrengthen the rupiah as it only attracted short-term funds.<\/p>\n
"I'm afraid the high interest rate policy, if kept for any
\nlonger period, would kill altogether our weak banking system
\nrather than strengthen our rupiah," Rizal told journalists.<\/p>\n
"We do not need such short-term capital inflows. What we need
\nis longer-term capital to build our economy and eventually
\nstrengthen our currency," he added.<\/p>\n
In order to attract long-term foreign funds, he suggested the
\ngovernment liberalize the relatively well-protected micro-
\nindustry sectors, especially resource-based sectors, to foreign
\nparticipation.<\/p>\n
"I think there are still many foreign inventors interested in
\ninvesting in our fisheries and other resource-based sectors."<\/p>\n
Rizal also supported the government's move to sell more of its
\nshares in listed state firms to foreign investors and to
\nprivatize healthy state firms to get fresh foreign exchange.<\/p>\n
"However, everything must be done transparently so the people
\nknow exactly what the government is going to do with all those
\nfunds," Rizal said.<\/p>\n
He said the government could also use some of the proceeds to
\nbail out some private companies' massive debts as they have been
\nnamed as some of the major culprits behind the rupiah's collapse.<\/p>\n
However, as with the privatization program, both the
\ngovernment and the private sector must be transparent in tackling
\ncorporate debt.<\/p>\n
"The most important thing is transparency and honesty. But the
\nproblem is that we are still in the dark as to who owes how much
\nto which foreign creditors," Rizal said.<\/p>\n
Theo added that a suitable climate must be developed to
\nattract long-term investment through all-out reforms both in the
\nbanking and production sectors and the legal system.<\/p>\n
However, Theo added, the rupiah's current instability would
\nmake it more difficult for the government to attract long-term
\nfunds, which were in turn needed to stabilize the currency.<\/p>\n
"So, what short-term policy should the government adopt to
\nstabilize the rupiah? I think the first thing that should be done
\nis to review our free foreign exchange regime," Theo said.<\/p>\n
The free foreign exchange regime has given more room for
\nspeculators to attack the rupiah, but little maneuvering space
\nfor the government to defend it.<\/p>\n
In addition to this the government had to speed up banking
\nreform so that banks could function again as intermediary
\ninstitutions between those who had excess funds and those who
\nneeded funding.<\/p>\n
"As long as the rupiah is unstable and the banking sector
\nremains vulnerable, it is difficult to attract foreign capital
\nlike during our golden time in the early 1990s when we enjoyed
\nmassive foreign capital inflows," Theo said.<\/p>\n
Both Rizal and Theo said the government also needed credible
\ndomestic policies to restore local people's confidence in it.<\/p>\n
They contended that domestic confidence in the government was
\nvital for any economic recovery to succeed.<\/p>\n
"We do need credible policies, but on top of that we need
\ncredible policymakers to restore public confidence," Rizal said.
\n(rid)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/long-term-capital-inflows-needed-to-shore-up-rupiah-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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