BI will not move toward capital controls: Syahril
BI will not move toward capital controls: Syahril
JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin stressed
on Friday that the central bank would not impose capital controls
to stabilize the beleaguered rupiah.
Sjahril said the current central bank law prevented Bank
Indonesia from taking such a step.
"We will never move toward capital controls. We'll continue to
adopt the free foreign exchange system as has been formulated in
the Bank Indonesia law," he said following Friday prayers at the
central bank's headquarters.
"(The free foreign exchange system) will remain in effect," he
added.
Sjahril was responding to fears that Bank Indonesia might move
toward imposing capital controls following the issuance of a
controversial foreign exchange ruling which limits rupiah-
denominated transactions between onshore banks and nonresidents.
Some economists and politicians have in the past called on the
central bank to adopt a capital control system similar to
Malaysia's, and to force exporters to repatriate their dollar
earnings to help stabilize the rupiah.
Sjahril said that Bank Indonesia would not expand the
limitations on rupiah transactions beyond what was stipulated in
the new ruling.
"There's no need to move further beyond the (new ruling).
It's certain that we will not impose capital controls.
"The new limitations are already sufficient to help stabilize
the exchange rate," he said.
Bank Indonesia announced the new ruling earlier this week,
putting in place two substantial limitations: a ban on onshore
banks from making certain rupiah transactions with nonresidents,
including foreign individuals and institutions; and lowering the
limit of forward transactions between local banks and
nonresidents without an underlying investment transaction to US$3
million from $5 million.
Bank Indonesia has said that the new rules are aimed at
helping curb speculation on the rupiah, which fell by more than
25 percent over the course of last year.
But Sjahril said that other factors, including domestic social
and political uncertainties, also affected the exchange rate of
the rupiah.
The rupiah strengthened slightly to Rp 9,445 against the US
dollar late on Friday, up from Rp 9,470 on Thursday.
The new ruling caused initial confusion among currency dealers
and foreign bankers, prompting the International Monetary Fund to
call on Bank Indonesia to provide clarification. Foreign bankers
met with Bank Indonesia officials on Wednesday.
According to reports, the new ruling has cut off a source of
income for certain foreign banks that have been active in
currency trading.
Meanwhile, Bank Indonesia Deputy Governor Miranda Goeltom was
quoted by Reuters as saying at a gathering with foreign
journalists on Friday that the central bank had no intention of
imposing capital controls, and that the new ruling was aimed at
stabilizing the rupiah.
Miranda made the following points about the new ruling:
* Jakarta-based foreign banks are classified as residents;
* Nonresidents investing in the local stock market have no cause
for concern over the ruling;
* Bank Indonesia will leave offshore rupiah deposits to market
mechanisms;
* It may take the market from one to two months to digest the new
rules;
Separately, Minister of Finance Prijadi Praptosuhardjo
welcomed the new foreign exchange ruling, saying he hoped it
would help strengthen the battered rupiah.
Prijadi said on Friday the rupiah's current exchange rate did
not reflect the true economic fundamentals of the country.
Speaking to journalists following a meeting with the House of
Representatives budget committee, he said the rupiah should be
stronger than its current level because the country's main
economic indicators were positive.
The government projects the rupiah to be at an average rate of
Rp 7,800 to the dollar this year.(rei)