Exchange rate of rupiah to the dollar
I am no economist, but just a retired civil servant of the Ministry of Finance. With respect to the drawn-out monetary crisis, which is far from being settled even though the government has done all sorts of things to remedy the situation, let me suggest the following:
1. The free foreign exchange regime should be restricted in a directed and controlled manner. The exchange rate of the rupiah against the U.S. dollar should be fixed at, for example, Rp 5,000. To this end, the government should back up this value of the rupiah by keeping a sufficient supply of foreign exchange reserves. It would not be necessary to back up all the rupiah in circulation. Backing up just 30 percent of the amount would do because domestic transactions in rupiah would not need any backing up.
Guarantees would be needed in the case of, for example, the importation of raw materials and other important goods, expenses incurred on important trips and school and medical expenses overseas. All this would amount to some 15 percent of Gross Domestic Product or some US$15 billion. Our foreign exchange reserve of $20 billion would be enough to cover this.
2. All foreign exchange needs, for example imports and so forth, should require permits from the government. The government would decide whether the use of foreign exchange was really necessary. So foreign exchange would be given as needed only, and only for really important matters. A request for foreign exchange for vacations abroad, for example, would be turned down.
3. All foreign exchange earnings would be controlled by the government. Exporters would be paid at an exchange rate of Rp 5,000 to the dollar. If an exporter needed foreign exchange for the importation of raw materials, he would first apply for a permit from the government.
4. Foreign investors and creditors, and also foreign tourists, would be permitted to bring in unlimited foreign exchange to Indonesia. Domestic debtors who wished to obtain external loans would first obtain permits from the government. The government would evaluate whether the projects were productive and feasible. The government would guarantee the repayment of loans abroad and their interest and the yields of investments in Indonesia.
Indonesia should do the above because the rupiah is not strong enough to freely compete in the international market. Otherwise, it could be easily toyed with by foreign speculators. Similar practices have been used in Eastern Europe, the People's Republic of China, Hong Kong and Taiwan.
The prerequisite to the implementation of the above would be that the government must be clean and strong, free of corruption and collusion, and must be supported by the people. Also, both government officials and private circles must have strong nationalism and patriotism in addition to being honest.
SUHARSONO HADIKUSUMO
Jakarta