Temporary freeze of forward deals urged<\/p>\n
JAKARTA (JP): The Econit Advisory Group is urging the
\ngovernment to gradually ease the tight monetary policy and to
\ntemporarily freeze foreign exchange forward transactions as the
\nliquidity crisis is overkilling the economy.<\/p>\n
The economic research institute said over the weekend that the
\ngovernment should cooperate with the Singapore monetary
\nauthorities in closely monitoring capital outflows through
\nforeign banks here.<\/p>\n
\"Bank Indonesia and the tax directorate general should audit
\nthe profits gained by banks and big companies from foreign
\nexchange transactions,\" Econit's Managing Director Rizal Ramli
\nsaid over the weekend.<\/p>\n
\"These measures are needed to allow the monetary authorities
\nto ease the credit crunch without setting off another wave of
\nspeculative attacks on the rupiah,\" Ramli added.<\/p>\n
According to him, the 15 largest business conglomerates in the
\ncountry should also be coerced to refrain from foreign exchange
\ntransactions until the currency crisis dies down.<\/p>\n
\"The latest developments in the foreign exchange market
\nclearly show that the tighter money policy is not effective for
\nstabilizing the rupiah rate,\" he pointed out.<\/p>\n
\"The current measures could have worked back in the 1970s when
\nthe government's role was very dominant. But our economic
\nstructure has significantly changed now, whereby it is the
\nprivate sector that plays the leading role in the economy,\" Ramli
\nnoted.<\/p>\n
The government's decision to hike the interest rate and drain
\nthe rupiah liquidity was an \"over kill\", as it worsened the
\ncurrency problems and might cause further damages to the economy,
\nhe said.<\/p>\n
\"We believe that Finance Minister Mar'ie Muhammad and the
\ncentral bank's governor, Soedradjad Djiwandono, are both men of
\nreason, integrity and intelligence. But the problem we are facing
\nnow needs a new approach,\" he said.<\/p>\n
Calling the current measure a \"pride-driven policy\" rather
\nthan a \"rationale-driven\" one, Rizal urged the monetary
\nauthorities to direct its policy to the improvement of national
\nwelfare and not simply to the strengthening of the financial
\nposition.<\/p>\n
The rupiah has been under attack in the past two months,
\ndropping by nearly 20 percent against the U.S. dollar after the
\ngovernment floated it on Aug. 19.<\/p>\n
The rupiah recovered briefly after the central bank squeezed
\nliquidity by raising the central bank's certificate rates to as
\nhigh as 30 percent for a one-month paper, stopping to discount
\nmoney market securities and force state companies to convert
\ntheir deposits to the central bank's papers.<\/p>\n
However, the currency continued to fluctuate, dropping to
\nalmost the same nadir rate prevailing before the central bank
\nimposed the credit crunch.<\/p>\n
On Friday, the rupiah recovered to Rp 2,890 against the U.S.
\ngreenback after touching a new record low of Rp 3,070.<\/p>\n
Rizal said the government ought to act now in order to prevent
\nfurther damages to the economic fundamentals.<\/p>\n
\"The liquidity could be eased by gradually lowering the
\ncentral bank's certificates (SBI) and by opening the SBI
\nrepurchasing and rediscounting of money market securities,\" he
\nsaid.<\/p>\n
But this eased liquidity should be coupled with a temporary
\nfreezing of foreign exchange transactions to prevent speculation,
\nhe added.<\/p>\n
He said the government must audit the profits raked in by
\nbanks and companies from foreign exchange deals and monitor
\nforeign exchange flows overseas through foreign banks operating
\nhere.<\/p>\n
The government also needs to urge the country's top 15
\nconglomerates to refrain from currency speculation, as many of
\nthe speculators were domestic players, he said.<\/p>\n
\"I could name at least four local big players in the exchange
\nmarket,\" he said, but he declined to give the names.<\/p>\n
Rizal divided the current crisis into two phases, which he
\nnamed the Patpong Effect and the Monas Effect.<\/p>\n
The Patpong Effect, named after the famous nightspot
\nentertainment area in Bangkok (Thailand), was the domino effect
\nfrom the financial crisis in Thailand in early July.<\/p>\n
Rizal said the attacks on the Thai baht in May and June, which
\nexploded to the baht's devaluation in early July, affected the
\nIndonesian rupiah as well as the currencies of other countries in
\nthe region in July.<\/p>\n
The problem was somewhat contained and the rupiah was
\nstabilized when the government acted promptly to widen the spread
\nintervention, he said.<\/p>\n
But the currency further weakened when local speculators
\nentered dollar-buying frenzies, he added.<\/p>\n
Problems worsened again when the government decided to drain
\nliquidity.<\/p>\n
He called the latter situation the Monas effect, named after
\nthe national monument in Jakarta, which was built at a time when
\nthe country was facing a dire financial condition.<\/p>\n
\"The monetary authorities seemed to be overly confident
\nbecause our fundamentals are strong, but in an abnormal situation
\nlike this, psychological factors play a stronger role than
\nfundamentals,\" he said.<\/p>\n
If this dire economic condition drags on over the next two
\nweeks, many banks and businesses would start collapsing because
\nof cash flow crises and economic recession, he warned.<\/p>\n
Many companies would not be able to get foreign loans, and
\nmany would call defaults because they could not afford the high
\ninterest rate, he said. (das)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/temporary-freeze-of-forward-deals-urged-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}