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.