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