Gus Dur denies plan on capital controls

Gus Dur denies plan on capital controls

JAKARTA (JP): President Abdurrahman Wahid dismissed on Monday
speculation that the government was considering imposing capital
controls to help strengthen the ailing rupiah.

Abdurrahman (Gus Dur) said that the government's plan to
reinforce the existing ruling on foreign exchange monitoring had
been misinterpreted.

"I said no. What we want is to have people register (report)
at the central bank whenever they bring a certain amount of money
overseas," he told a media conference following a breakfast
meeting with visiting International Monetary Fund (IMF) managing
director Horst Koehler.

He said the existing regulation on the requirement for
Indonesian citizens to report to the central bank whenever they
traveled overseas bringing more than Rp 5 million in cash had not
been properly applied.

Koehler also said at a separate media conference that
Indonesia would not impose capital controls.

"The President and I fully agreed that the introduction of
capital controls would be counter-productive," Koehler said.

He explained that imposing capital controls would not help
strengthen the rupiah, but would even further weaken the local
unit because it would deter foreign investors and hinder the
sustained economic recovery.

The comments made by Abdurrahman and Koehler ended days of
speculation that the government was planning to implement capital
controls to help shore up the beleaguered rupiah.

Media reports said last week that the President had asked his
senior economics ministers to study the possibility of imposing
some form of capital control, including measures to force the
country's exporters to park their earnings at home rather than
overseas.

Asked if the IMF would support the repatriation of the
country's export earnings, Koehler said: "The government has said
that it's not going to impose capital controls. That's it."

Rumors about the capital control plans helped strengthen the
rupiah last week, which closed at Rp 8,385 per U.S. dollar on
Friday, compared to Rp 8,630 on Wednesday. But the local stock
market was hit by the plan.

The rupiah weakened again to Rp 8,445 on Monday after
Abdurrahman denied the capital control plans, but the Jakarta
Stock Exchange gained 2.1 percent with the Composite Index
closing at 453.94.

The local currency has been under strong pressure over the
past few months due to a combination of domestic political
uncertainty and slow progress with the country's economic reform
program.

The current state budget assumes an exchange rate of Rp 7,000
per dollar.

Koehler reiterated that the key to strengthening the local
currency was a "steady" and "transparent" implementation of the
economic reform program, not imposing capital controls.

"Strong and forceful implementation of the economic reform
program will no doubt strengthen the rupiah," he said.

Koehler was on a one-day visit to Jakarta, after making
similar trips to China, Thailand and South Korea. His last visit
of his five-nation Asian tour will be to India.

"I've come here to also personally reconfirm and reassure that
we are here to support and to help, not to lecture or impose.
But, of course, we will give frank advice," Koehler said.

He said that the approval on June 2 by the IMF executive board
to disburse some US$372 million in a loan to Indonesia showed the
fund's commitment to supporting the country's economic reform
program.

The second loan disbursement was part of the total $5 billion
promised by the fund in January to Abdurrahman's administration.

Koehler said that he had received the full commitment of the
President, Vice President Megawati Soekarnoputri and House of
Representatives Speaker Akbar Tandjung to implement the economic
reform program.

The President told him would closely monitor the
implementation of the reform program, he said.

Koehler said that the IMF was confident that the country would
be able to achieve its 4 percent economic growth target this
year.

"Of course that is not enough to solve all the huge problems
in the country, but it is a good starting point," he said.

Koehler also said that he and Abdurrahman agreed that there
was a need to revitalize the Indonesian Bank Restructuring Agency
(IBRA) to allow it to speed up the disposal of the agency's large
assets and the restructuring of banks and indebted enterprises.
(rei/cst)