Govt consults IMF, WB on capital control plan

JAKARTA (JP): The government is consulting with the International Monetary Fund (IMF) and the World Bank over plans to implement a new system to monitor capital flows, according to Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita.

He said on Friday that the government needed to get the views of various experts before implementing the new system so that it would be effective and meet the government's objectives.

"We are seeking the views of the IMF and the World Bank so that whatever we do will be truly effective," Ginandjar told reporters.

He added that Bank Indonesia's governor and the finance minister were also discussing the plans with the international community in Washington.

"We're still studying various (models) used in other countries," he said.

However, he reaffirmed that the government will not impose strict capital controls.

Ginandjar explained that in principle, a freely floating foreign exchange regime was the most appropriate for the country, but said that improving the monitoring and reporting of foreign exchange flows was essential.

Asked whether the country's exporters should surrender their hard currency earnings, he said: "We hope so."

News that the government plans to introduce some form of capital controls reemerged earlier this week when Ginandjar was quoted by a newspaper as saying that the government was considering obliging exporters to report their hard currency earnings to the authorities for monitoring purposes.

Market players and analysts were convinced that this meant the government would make it obligatory for exporters to surrender foreign exchange earnings to the central bank because a non- obligatory approach would not be effective in strengthening and stabilizing the rupiah.

Analysts said that any rule forcing exporters to report or surrender hard currency earnings to the central bank could be interpreted as an undue control on the movement of capital.

However, the news has helped to send the rupiah to significantly higher levels against the U.S. dollar over the past couple of days.

Separately, Bank Indonesia Governor Sjahril Sabirin said on Thursday in Washington that the introduction of a new currency flow system would not take place this year.

"It is not coming out so quickly. We're not in a hurry. It's unlikely within the year, but it could be next year," he told AFP before winding up his visit to Washington for the IMF and World Bank's annual meeting.

Finance Minister Bambang Subianto underscored the need for both developed and emerging economies to devise a new system to jointly monitor hedge fund operations.

He was speaking at a press conference on Thursday, the last day of the annual meeting.

"It should not be done by only recipient countries. It should be done on an international agreement," he said.

"A framework should be applied in many countries. This will be a control system in the recipient countries and the home countries of hedge funds," he said.

The IMF's interim committee reached a broad consensus on the need to closely monitor operations of hedge funds as a result of fears that short-term capital flows were capable of triggering a global financial crisis.

Bambang said Indonesia was ready to push follow-up discussions on the issue together with international institutions and developed nations, including the U.S. and Japan. (rei)