Economists oppose RI currency board

Economists oppose RI currency board

MANILA (AP): Southeast Asian economists believe Indonesian plans for a currency board and Malaysian proposals for the use of local currencies in trade will further aggravate the region's financial crisis, an official said yesterday.

This was the consensus from a meeting in Manila of nearly 40 private and government economists from the Association of Southeast Asian Nations, Asian Development Bank Institute dean Jesus Estanislao said.

"The response was overwhelmingly negative. It is believed that these proposals are inappropriate solutions to the crisis since they will do more harm than good," Estanislao said.

Indonesia is preparing to establish a currency board to stabilize its currency, the rupiah. Under a classic currency board system, a country pledges to exchange each unit of its currency for a fixed amount of foreign currency.

Estanislao said Indonesia's plan goes against most economists' prescription of allowing foreign exchange rates to be determined by market forces. He added that Indonesia does not have sufficient reserves to defend its currency.

"The contagion effect of the financial crisis in Southeast Asia stemmed from having stubbornly pegged interest rates at unrealistic exchange rate levels," he said. "Why would anyone want to repeat that problem?"

Estanislao said the group of economists who met in Manila on Wednesday will recommend as an alternative to the currency board proposal a trade credit facility to be extended by members of ASEAN to Indonesia.

This proposal, he said, would serve as a short-term solution to Indonesia's currency crisis since it would allow the country to conserve its dollar reserves.

"This idea is being floated in the region at the moment. There's nothing definite, but serious work is being done to create this (proposal)," Estanislao said.

He believes at least US$25 billion in credit can be extended to Indonesia by ASEAN and other countries such as Japan, based on informal discussions among the region's deputy finance officials.

Estanislao said the economists also were not enthusiastic about Malaysian proposals for trade among ASEAN members to be conducted in local currencies instead of dollars to conserve foreign exchange.

He noted that intra-ASEAN trading is marginal compared to trading between ASEAN members and countries outside the region. The amount of dollars that would be conserved therefore would not be great, he said.

He said the economists believe the agreement would only "further complicate an already complicated trading process" within ASEAN.

ASEAN groups Brunei, Burma, Indonesia, Laos, the Philippines, Malaysia, Singapore, Thailand and Vietnam.