Indonesia cannot enforce capital controls: Anwar

Indonesia cannot enforce capital controls: Anwar

SINGAPORE (AFP): Indonesian central bank senior deputy
governor Anwar Nasution said here Tuesday that Jakarta had
shunned capital controls because they could not be enforced and
would only deter foreign investors.

Speaking on the sidelines of an economic forum, Anwar also
ruled out any currency peg and interest rate hike, and said the
rupiah could return to the 7,000 level if domestic politics
stabilize.

Despite the rupiah's sharp decline to around 8,500 to the
dollar, its lowest level for over a year, Anwar said it would not
benefit Jakarta to introduce capital controls.

"There is no point to control the capital. It deters foreign
investors, it's like a fish trap or the 'bubu'... the fish can
get in but cannot get out. Indonesia is not a bubu," he told
reporters at the Asia Development Forum organized by Singapore,
Japan, the World Bank and the Asian Development Bank.

Anwar also cited difficulties in implementing the curbs,
although neighboring Malaysia successfully imposed the controls
including a currency peg in 1998 when it sank into recession.

"We are a very much bigger country. We have 17,000 islands ...
and the legal system is also not as strong as Malaysia," he said.

"I cannot imagine how we can enforce and implement the
controls. We tried in the past but we face corruption, so it
won't work."

Indonesian President Abdurrahman Wahid said Monday that curbs
would not be introduced as it would be counterproductive.

But Jakarta will require everyone entering or leaving the
country to register any amounts of currency they were carrying
over five million rupiah (US$588), Abdurrahman said.

Anwar also ruled out plans to peg the rupiah to the US dollar,
citing Hong Kong's past experience where it was forced to spend
huge sums of its external reserves to defend the peg.

"We are not that rich," he said.

He voiced confidence that the rupiah could improve if
Indonesia's political concerns were addressed.

"If we stabilize again, if we solve the political and security
problems, we can easily get back rapid rates of growth and easily
get back to a stronger rupiah," he said.

But Anwar cautioned the situation could worsen when
Indonesia's People's Consultative Assembly, the highest
legislative body with the legal power to dismiss President
Abdurrahman Wahid, convenes in August to hear him account for his
rule.

"It can be volatile if they cannot control (the situation).
Some people said they are going to impeach the president. I think
it is going to be quite unproductive for the economy... but it's
beyond our control," he said.

Anwar said Indonesia had no need to raise interest rates at
the moment.

"At present, the interest rate is hovering around 12 percent
while inflation rate is at the five percent level, so we have a
six to seven percent real interest rate. I think it is one of the
highest on earth," he said.

Asked if bank governor Sjahril Sabirin should step down
temporarily after he was named as a suspect in the $80 million
Bank Bali scandal, Anwar said it was "quite unfortunate" but
declined to comment.

Sjahril was charged with violating the Corruption Crimes Law
by failing to implement prudential banking practices but he
refused to step down despite being urged by the president.