Two-tier forex trading proposed to stabilize rupiah<\/p>\n
JAKARTA (JP): The Indonesian Institute of Sciences (LIPI) has
\ncalled on the government to adopt a two-tier foreign exchange
\ntrading system to prevent a further drop in the value of the
\nrupiah against the U.S. dollar.<\/p>\n
LIPI's economist Wijaya Adi said here yesterday that the two-
\ntier trading system, under which a lower exchange rate would be
\noffered to importers, was essential to stabilize the Indonesian
\ncurrency.<\/p>\n
\"The IMF economic reform program can't guarantee that the
\nrupiah will stabilize, then appreciate in value in the short
\nterm. During these abnormal times we must come up with emergency
\nmeasures to stabilize the rupiah because people cannot endure the
\ncrisis for much longer,\" he told the media yesterday.<\/p>\n
He said that under the proposed trading system, importers
\nwould get a special conversion rate when buying U.S. dollars
\nwhile other forex trading would be based on the market exchange
\nrate.<\/p>\n
Exporters should be required to deposit their foreign exchange
\nreceipts in Bank Indonesia or appointed commercial banks to
\nensure that the country has foreign exchange reserves large
\nenough to support the dual rate program, Wijaya said.<\/p>\n
He explained that the rupiah would gradually stabilize under
\nthe two-tier exchange rate system by discouraging speculation on
\nthe currency. Importers, he said, would have a guaranteed supply
\nof cheap dollars and the government would have large foreign
\nexchange reserves with which to intervene in the currency market
\nif the need arose.<\/p>\n
Wijaya said that in July, according to his calculations, the
\nreal value of rupiah should have been slightly above Rp 3,993 to
\nthe dollar.<\/p>\n
\"The rupiah should gradually approach this level and the most
\neffective way to bring this about is through a dual exchange rate
\nsystem,\" he said.<\/p>\n
The rupiah was hovering at around Rp 14,000 against the dollar
\nlast month, compared to its pre-crisis level of Rp 2,450 in July
\n1997.<\/p>\n
Wijaya added, however, that although a dual exchange rate was
\na good idea, implementing it may not be easy because of the
\nbureaucracy's poor performance and bad \"habits.\"<\/p>\n
Political stability and a clean government is an absolute pre-
\ncondition for a dual exchange rate system, he pointed out.<\/p>\n
\"No economic policy is effective without political stability,\"
\nhe said, adding that a clean government was needed to ensure that
\nsubsidized dollars were only used for imports and that exporters
\ndid not smuggle their produce out of the country to avoid
\nsurrendering their dollar earnings to the government.<\/p>\n
He said the government must also appoint a select group of
\nstrong and healthy banks to work under the scheme to ensure that
\nlocal letters of credit held by exporters are accepted by
\noverseas banks.<\/p>\n
He added that the government would also have to convince the
\nIMF that a two-tier exchange rate system was capable of
\nstrengthening and stabilizing the rupiah.<\/p>\n
\"The government must dare to fight the IMF because its program
\nof reform does not guarantee a stable rupiah,\" Wijaya said.<\/p>\n
However, he did not believe the government should press ahead
\nwithout first putting these prerequisites in place, saying:
\n\"Without all these conditions in place it is better not to
\nintroduce a two-tier system because it will only create bigger
\nproblems.\"<\/p>\n
He stressed that the two-tier system was only a temporary
\nmeasure and that it must be abandoned as soon as the rupiah
\nstabilizes at a desirable level.<\/p>\n
\"I admit that this dual system is against a free market
\nconcept, but these abnormal times leave us with a very limited
\nnumber of options,\" he said.<\/p>\n
He said that if the rupiah appreciated and stabilized,
\ninflation and interest rates would decline correspondingly and
\nthis would attract new investment and create job opportunities.<\/p>\n
Several local experts and businessmen have also proposed a
\ntwo-tier system as a quick way to lift and stabilize the ailing
\nrupiah.<\/p>\n
Carunia M. Firdausy, a director in LIPI's economic research
\ndivision, said a report on the institute's research into a two-
\ntier exchange rate had been sent to President B.J. Habibie and
\nthe Supreme Advisory Council (DPA). (rei)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/two-tier-forex-trading-proposed-to-stabilize-rupiah-1447893297",
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