Exchange rate of rupiah to the dollar

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