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)