On foreign currency flows<\/p>\n
I would like to respond to Mr.C.J.de Koning's two articles in
\nyour paper "RI's international stakeholders" on Sept. 18, 1998
\nand "Risk reduction strategy needed" on Sept. 25, 1998.<\/p>\n
In his first article, he has likened the foreign currency
\ncapital inflow and outflow as water which causes flooding if
\nthere is too much and droughts if there is too little. He has
\nsuggested the solution may lie in introducing government US$
\nshort term promissory notes (SBI).<\/p>\n
And yet in his second article: Risk reduction strategy needed,
\nhe conversely suggested that the capital flow was a symptom, not
\nthe cause and again short term promissory notes (SBI) in US$ were
\nrecommended.<\/p>\n
If the foreign currency flows are like water which will cause
\nfloods or droughts, then, we would have to build a dam or dike
\nwith floodgates to control the flow and also install a pump.<\/p>\n
A free-floating exchange rate without control is not only a
\nquestion of exports and imports based on trade weighting and is
\nalso not the cause but is an effect of the overall imbalance in
\nsupply and demand of foreign currency flow, especially short term
\nflow.<\/p>\n
The primary cause of that sudden massive outflow leading to
\nthe dramatic fall in the value of the rupiah against the US$ can
\nbe ascribed to confidences -- both domestic and international --
\nand macroeconomic management, especially the external balance.
\nAnd the approximate cause is the familiar massive mountain of
\nshort term private debt.<\/p>\n
The suggestion of introducing government short term US$
\npromissory notes (SBI) would lead to a similar situation to that
\nwhich occurred in Latin America's crisis a decade ago, caused by
\nmassive short term government debt. Such a suggestion together
\nwith existing massive short term private debt would lead us to
\nhave the worst devils of two worlds. Such a suggestion is not a
\nrisk reduction but a crisis aggrandizement. A more appropriate
\nrisk reduction measure is confidence restoration and building.<\/p>\n
Indeed President B.J. Habibie made a good point when he said
\nthat Indonesia is like a jewel on top of a volcano and after the
\neruption of the volcano, people would come back to climb the
\nvolcano to try to get that jewel. But what if there is another
\neruption, shock after shock while there are many jewels in the
\nworld elsewhere with minor or no eruptions at all.<\/p>\n
SIA KA MOU<\/p>\n
Jakarta<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/on-foreign-currency-flows-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }