Economist urges BI to broaden policy focus

JAKARTA (JP): Bank Indonesia must take its blinkers off in its single-minded pursuit of stabilizing the rupiah to focus instead on curbing inflation and breathing new life into dying domestic businesses, economists advised yesterday.

Mari E. Pangestu, executive director of the Center for Strategic and International Studies, said the central bank's policy to stabilize the rupiah through high interest rates was paralyzing the domestic economy and resulting in spiraling inflation.

"We should come back to basics (of the main duty of the central bank) that pursuing monetary policy should have one objective, namely (controlling) inflation and not back and forth to strengthen the rupiah's rate," Mari said at a seminar hosted by the Prasetya Mulya School of Management.

Although the central bank is using various means and working hard to defend the rupiah, Mari predicted the currency would remain weak at about 9,000 to 10,000 against the U.S. dollar toward the end of this year.

It might strengthen to about 8,000, Mari added, only when political factors were already solved, investor confidence in the country was restored, corporate foreign debts were settled, the banking sector regained its health and foreign capital reentered Indonesia.

This reality meant the central bank should from now on use all of its resources to contain inflation, which affected the lives of all Indonesians, rather than vainly attempt to prop up the rupiah value, she said.

Currently, when inflation was projected by many to surpass the 100 percent barrier this year, efforts to contain inflation through a tight monetary policy alone would be insufficient.

Cutting interest rates to revive the economy would pose another problem because of the already high inflation expectation for this year.

"The policy toward inflation could be pursued by containing money in circulation and ensuring the availability of goods and basic services," Mari said.

She also suggested that the central bank and the government should help export-oriented firms to ensure the flow of their products to generate foreign exchange.

Indonesia should book a trade surplus this year provided that factors hindering exports were all addressed properly, Mari said.

She also called on the central bank and the government to mend the destroyed microeconomic fundamentals by creating a market economy free of distortions, pursuing policy consistency and restoring the health of the financial sector.

Djisman Simandjuntak, another economist at the center and also president of Prasetya Mulya, suggested that companies first of all pursue a "survival strategy" to weather the crisis.

Toward the future, Djisman said, Indonesian corporations should build a "good corporate governance" culture by pursuing transparency and dismantling all unsavory practices related to corruption, collusion and nepotism.

Djisman also suggested that the government, in cooperation with corporations, dissolve single majority holding of a large company and spread ownership to more people and different layers of society.

He said it would be fair to require a company with 1,000 or more employees to comply with all rulings applied to publicly listed companies.

It would also be just, he added, for owners of companies which use public resources like bank credits and natural resources to divest their ownership. (das/rid)