Give exchange controls a chance

Give exchange controls a chance

I was amazed at your dismissal of the concept of exchange
control (Editorial Aug. 5: Clutching at straws). You do not seem
to have any particular argument except that (a) exchange controls
will affect private capital inflow (well there isn't any at the
moment so things can't get any worse), (b) it will affect market
confidence in the rupiah (please tell me exactly when, during the
last 30 years, there has ever been "market confidence" in the
rupiah!) and (c) that exchange controls will fail because of
corruption and manipulation (what an unbelievable excuse in this
era of reform).

Exchange controls are not a long-term solution but have been
used successfully in the past by governments (from UK to NZ) as a
tool to give breathing space to a battered economy to allow
business to get back to work and to encourage capital flow.

Give it a chance for the next four to five years. Fix the
rupiah at Rp 3,600, watch interest rates tumble and then
concentrate on the problems which existed before July 1997.

By the way, I agree that the currency board proposal is
unfeasible, but this is because it was essentially a pegged rate
system (not fixed rate) without exchange controls and relied
heavily on foreign currency reserves and domestic interest rates
to stabilize the exchange rate.

In simple terms it meant that Indonesia would be betting the
inheritance of its children against free market forces. The
economic gurus already managed to waste US$15 billion, or half of
the country's foreign reserves, last year. What Indonesia needs
now is tough economic policy, not "market confidence." It will be
unpopular with individuals and speculators but it will protect
the worth of the nation for its children.

JOHN SLACK

Jakarta