Economist urges BI to broaden policy focus

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)