Rupiah weak waiting on IMF outcome<\/p>\n
The rupiah has lost ground as the currency market waits for
\nthe outcome of negotiations between the Indonesian government and
\nthe International Monetary Fund (IMF). Economist Kwik Kian Gie
\nshares his thoughts on the situation.<\/p>\n
Questionb: Why has the rupiah lost ground again?<\/p>\n
Kwik Kian Gie: Talks with the IMF have not been fruitful,
\nwhile demand for dollars surges. Like many other people, I'm
\nstill in the dark about what the IMF's package would look like.<\/p>\n
Some people have said the problem is psychological and that a
\nreasonable IMF package should calm the market.<\/p>\n
True, but only temporarily. When news first came that the IMF
\nwould help Indonesia, the dollar rate fell by Rp 100 every day
\nfor three consecutive days. After that, it started to climb
\nagain.<\/p>\n
Q: Some experts have said that a realistic value for the rupiah
\nwould be between Rp 2,800 and Rp 3,000...<\/p>\n
K: I don't know how they arrived at those figures. One factor
\nthat determines the rupiah's value is the purchasing power
\nparity. Another is psychological. There's a third factor that is
\nvery influential: an imbalance between demand and supply.<\/p>\n
We can eliminate the psychological factor through IMF
\nintervention. The IMF can calm the market by saying that based on
\npurchasing power parity, the realistic value of the rupiah is
\nbetween Rp 2,800 and Rp 3,000 per dollar. But how do you
\neliminate disparity between demand and supply?<\/p>\n
Q: Can you explain the surge in dollar demand?<\/p>\n
K: I can't explain it with figures because they're not available.
\nBank Indonesia has just started collecting details of the private
\nsector's debts denominated in dollars. We only know that demand
\nfor dollars exceeds our needs to finance imports.<\/p>\n
The government is keeping its own foreign exchange reserves to
\nservice its own debts. Meanwhile, the dollar debts of private
\ncompanies are estimated at US$60 billion. That's a very large
\namount to service.<\/p>\n
The dollars that were used to purchase shares at local stock
\nexchanges have left the country. So have the dollars that were
\nonce deposited at local banks. The influx of foreign investments
\nat one time also supplied dollars to the local currency market.<\/p>\n
That leaves us with dollars from export income, and they are
\nalso drying up as we are headed towards a trade deficit.<\/p>\n
Q: Is it possible that the currency market has been affected by
\nreports that many private debtors are not sound?<\/p>\n
K: Very possible. They are desperate for money. They have
\nexhausted the funds at the Jakarta Stock Exchange. They have
\ntaken large loans from state banks, and some of these loans have
\nbecame problematic. They have tapped funds from private banks,
\nsome of which were part of their own conglomerations. And they
\nhave turned in great numbers to foreign banks for offshore loans.<\/p>\n
Q: Couldn't offshore banks have detected from the audited
\nfinancial reports that these companies were overborrowing?<\/p>\n
K: Even financial reports audited by the best public accountants
\ncould be forged. Accountants and companies work under the
\nagreement that the responsibility for accuracy lies with the
\ncompanies, not the accountants. This is standard practice in the
\nAssociation of Indonesian Accountants.<\/p>\n
The companies would forge documents about their debts because
\nthere are no sanctions if they are found out.<\/p>\n
Q: Couldn't the foreign banks have foreseen this problem?<\/p>\n
K: They and other fund managers could not have resisted the
\ntemptation of investing in Indonesia. They simply couldn't stop
\nit. Now they have completely changed. All investment plans in
\nIndonesia have been canceled.<\/p>\n
Q: What do you think the IMF should do now?<\/p>\n
K: The IMF should make known its opinion of what it considers as
\nthe realistic rupiah's exchange rate. It would be even better if
\nit explained the methodology used.<\/p>\n
The IMF could announce that it had the funds to support the
\nrupiah rate. It does not have to disclose by how much.<\/p>\n
With IMF and World Bank support, the government should seek to
\nreschedule its foreign debts, postpone their payments and spread
\nthem out in small installments.<\/p>\n
The Indonesian Chamber of Commerce and Industry could
\nnegotiate on behalf of the private companies with bank creditors
\nto reschedule their debts and also to spread out the repayments.<\/p>\n
Meanwhile, we need to resolve the problem of bad debts. We
\nhave to use from the state budget to clear these bad debts out,
\nsay, within three years. Those who have defaulted on their
\npayment should still be punished.<\/p>\n
And there are the long-term solutions such as deregulation and
\nuprooting corruption.<\/p>\n
Q: Would aid-donor countries and foreign banks agree to this
\nidea?<\/p>\n
K: They have no choice. There's a saying that if the debt is
\nsmall, the borrower is in trouble. If the debt is big, the bank
\nis in trouble. But if the debt is excessively large, the whole
\nworld is in trouble.<\/p>\n
Creditors are not obliged to give loans to Indonesia.<\/p>\n
Obviously, they won't give the money immediately. They will
\nmake calculations. They know they have to share the consequences
\nif their judgment proves to be wrong.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/rupiah-weak-waiting-on-imf-outcome-1447893297",
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