Reasonable rupiah exchange rate<\/p>\n
From Suara Karya<\/p>\n
Currently, monetary officials and economic observers are busy
\ntalking about the drastic strengthening of the rupiah over the
\npast few weeks. Since president Abdurrahman Wahid's descent, the
\nrupiah became stronger by about 2,200 points, a praiseworthy
\nachievement, which reflects the market's positive response toward
\nthe new government.<\/p>\n
But actually what is the reasonable exchange rate of the
\nrupiah against the U.S. dollar? Almost all the views of officials
\nand observers reported in newspapers never touch on the
\n"devaluation theory", which weakened the rupiah year by year
\nduring the New Order regime.<\/p>\n
In October 1978, then in 1982 and lastly in 1986, the
\ngovernment devalued the rupiah by between 45 percent and 55
\npercent. But in 1990, when such devaluation should have been
\nexecuted again, the Monetary Council headed by Prof. Dr. Sumarlin
\ndid not do so, because routine devaluation was considered to be
\nunpopular. Instead they felt compelled to impose a Tight Money
\nPolicy (TMP). The media made a joke of the abbreviation TMP,
\ncalling it, Taman Makam Pengusaha (The Graveyard of Businessmen).<\/p>\n
During that time Kredit Lunak Bank Indonesia (Bank Indonesia's
\nSoft Loans) was discontinued and as banks no longer provided soft
\nloans for industries a huge number of businesses collapsed. The
\ngovernment kept on trying to maintain the exchange rate of rupiah
\nat around Rp 2,000 per U.S. dollar until the end of 1997, when it
\nwas rendered incapable of subsidizing any further and the
\nexchange rate skyrocketed to over Rp 10,000.<\/p>\n
The actual inflation rate during the New Order regime was
\napproximately 15 percent, which was always manipulated by the
\nthen government to a one digit figure (below nine percent).
\nFinally today we have to be penalized for the above continuous
\nsubsidies in the form of swelling loans.<\/p>\n
In my calculation the reasonable exchange rate of the rupiah
\nagainst the U.S. dollar today should be Rp 1,100 multiplied by
\n1.5 to the power of 6, which equals Rp 8,350. The figure 1,100
\nwas the exchange rate in 1986 and the power of 6 is based on the
\ngovernment's routine devaluation every three years, which had
\nbeen discontinued since 1986 and was actually already missing 5
\ninstances of devaluation plus 1 (an unroutine factor). The figure
\n1.5 is 100 percent plus the average devaluation rate at 50
\npercent.<\/p>\n
I conveyed this theory to Mr. Budiono (former chairman of the
\nnational development planning board) in October, 1997, when the
\nU.S. dollar started to creep upward, but as I was not an expert
\non the economy, it was brushed aside. However, today's reality is
\nnot far from this theory.<\/p>\n
Exporters need not worry, because the exchange rate of the
\nrupiah will never reach Rp 7,000, although politicians have kept
\nquiet. The exchange rate of the rupiah will move to the range of
\nRp 8,000 - Rp 8,500, but the most important thing is to have a
\nstable rupiah for a long time to come.<\/p>\n
This stability is based on the government's capability to
\ncreate good governance, which is free from corruption so that the
\nannual inflation rate can be kept down to 5 percent.<\/p>\n
ZAINUDDIN ZAINI<\/p>\n
Jakarta<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/reasonable-rupiah-exchange-rate-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }