Indonesia denies plan to control export earnings

Indonesia denies plan to control export earnings

MANILA (Dow Jones): The Indonesian government is still studying a plan that could force exporters to repatriate their foreign exchange earnings, Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita said Wednesday.

Speaking on the sidelines of a meeting of trade ministers from the Association of South East Asian Nations, Ginandjar said the plan was an "attractive option," but said that the government was also looking at others.

The minister stressed that such a move wouldn't be a form of capital control.

Ginandjar said the government wasn't under pressure to quickly implement such a scheme. "We're not in a hurry and are not closing the door on other options," he said.

"It should not be interpreted that we are going back to controls...that is out of the question," he said.

"We will continue to adhere to an open capital account," Ginandjar added.

Officials at the investment ministry said this week several ministries -- including investment, economics and finance -- were considering a plan under which exporters would have to repatriate their foreign exchange income at park it either at the central bank or other Indonesian banks.

The officials stressed that this didn't constitute a foreign- exchange control, noting that the exporters would be free to withdraw their funds at any time. Analysts question this, however.

The Indonesian rupiah has strengthened to levels not seen since early May on the back of the speculation.

The rupiah was trading at Rp 9,500 in the afternoon Wednesday in the spot market, a level not seen since before the riots leading to the fall of former president Soeharto shook Jakarta.

The rupiah is higher than its close in Asian trading Tuesday of Rp 10,000.

The Indonesian currency is now trading below the government and International Monetary Fund's year-end target of Rp 10,000 per dollar.

Despite repeated government assurances that Indonesia will not implement sweeping Malaysian-style controls on capital movements, market participants still speculate that the government is planning to peg the rupiah to the dollar. If it does so, they say, it will likely be at a level close to its year-end target.

Ginandjar said the government was also looking at other models to monitor capital flows, such as that adopted by Chile.

"We are considering other concepts, for example in Chile where capital inflows and not outflows are controlled," he said. "They (Chile) are trying to curb short-term capital inflows."

Chile defied the international financial community when it devised a formula to try to insulate itself against collapsing economies around it by placing restrictions on the inflows of capital. The country has won grudging acceptance from some skeptics for its policy.

Ratings agency IBCA recently said that exchange controls such as those used by the Chilean government to discourage short-term volatile capital inflows may help to improve the structure of a country's external obligations, making them less vulnerable to sudden shifts in investor sentiment.

Bank Indonesia directors have previously admitted that they were studying the Chilean model to see whether it would be suitable for Indonesia, also eager to monitor the flows of so- called hot money in and out of the country.

ASEAN ministers are expected to discuss the social costs of unbridled capital movements at their two-day meeting in Manila. Ginandjar is also expected to raise the oft-mooted idea of using regional currencies for regional trade, to lesson the bloc's reliance on the U.S. dollar.

Several of ASEAN's members are known to favor this payment mechanism.