Business hopes tight policies will end soon

JAKARTA (JP): Businesspeople are hoping the government will keep its promise that the tight monetary policy launched early this month to shore up the falling rupiah will be only temporary.

Fadel Muhammad, a senior Bukaka Group executive, said Saturday that many businesses could collapse if the credit crunch measures were kept for a long time.

"The policy should be lifted as soon as possible," he said in comments on President Soeharto's State of the Nation Address to the House of Representatives.

In his speech, the President said that the Indonesian economy was fundamentally strong despite the rupiah's sharp fall against the dollar and promised that the tight monetary policy would be eased once the rupiah stabilized.

Fadel acknowledged that the central bank had no choice but to impose the tight monetary policy to fight the currency speculation.

But, he pointed to the sharp increase in interest rates as the impact of the policy that would most hurt business activities.

The central bank has raised interest rates of its short-term promissory notes, SBIs, by several percentage points to tighten the rupiah's liquidity. In addition, the central bank also stopped buying money market certificates from commercial banks to ensure that its tight policy could affectively drain the market liquidity.

However, the central bank's monetary move caused an increase in the interbank rates to as high as 125 percent as many small banks suffer liquidity problems.

Tanri Abeng, the president of the Bakrie Group, said the government should be able to control interest rates in order to limit the affect of the monetary policy on business.

In the longer term, there would be a negative impact on foreign investment in Indonesia if the interest rates remained high, he said after the President's speech.

He also said that controlling the interest rates alone was not enough to enable the country's industries to operate more efficiently.

President Soeharto said Saturday that the country's business community, those involved in the financial sector and others, should grasp the effects of the recent upheavals affecting the rupiah.

"They shall all discover that foreign loans are no longer easily and cheaply obtained like before the storm. All parties concerned are reminded by the recent events to act prudently in borrowing, in order not to rely excessively on loans to finance their businesses and to seek safer and steadier ways of funding."

He said that in an open economy and free foreign exchange system that Indonesia had adopted, the private sectors were indeed free to make foreign borrowings.

"The loans to finance investment are probably quite profitable for the investor concerned. However, in macro terms these borrowings may become a national burden, particularly when the investment does not produce the necessary foreign exchange for debt servicing. For this reason, besides the government, the private sector should also exercise caution in foreign borrowings," the President said.

Cement tycoon Sudwikatmono said that local companies should be more selective in their approach to foreign borrowing.

In the current situation, when the rupiah is not so stable, foreign borrowing would be very costly to local investors, he said.

The fall of the rupiah could, therefore, become a good lesson for us on how to hedge or to chose what kinds of foreign loans carry low risk, he said.

"A loan syndication could be a good alternative because this kind of loan is mostly guaranteed," he said.

In his speech, Soeharto said that businesses had to get used to protecting themselves from any currency risk by capitalizing on the existing instruments.

"These are all normal business practices in many advanced countries. Our business community should move in this direction. When everybody takes out good protection, our economic resilience will automatically become stronger, regardless of any upheavals that may take place, he said. (icn)