Indonesia's currency board dilemma

Indonesia's currency board dilemma

It is quite normal for international financial institutions
(the IMF and the World Bank) to say that Indonesia should not
rush into implementing the currency board system before it has
fully implemented its current economic reform package. We
understand their concern over the possibility that the reform
package will not be fully executed.

The warnings given by the IMF and the World Bank deserve to be
considered thoroughly. The impression that the only aim of having
such a board is to render the central Bank Indonesia sterile with
regard to its duties and functions, which are set under Central
Bank Law No.13/1967, should be avoided. This is all the more
relevant since rumors are circulating that Bank Indonesia
Governor J. Soedradjad Djiwandono intends to resign from the
cabinet because the central bank is considered to have been
unable to keep the rupiah's exchange rate against the U.S. dollar
below the Rp 10,000 level.

We know that fluctuations in the value of currencies in this
era of globalization are very much determined by market
sentiments. Mostly, market players want positive sentiments
stemming from such factors as the existence of good governance
and a government that is transparent and enjoys good authority
because of its commitment to good law enforcement -- strategic
factors which can bolster the value of our currency in the
international community.

We are now faced with the dilemma of whether to go ahead with
setting up a currency board system despite the fact that we have
not yet been able to eliminate our high-cost economy, or whether
to give first priority to economic reforms, such as suggested by
the IMF, and apply the currency board system afterwards.

It should be realized that should the currency board system
fail to yield the optimal results desired the effect could be bad
for our economy. Among other things, bank interest rates would
soar and corruption and collusion would continue to flourish,
making it difficult for us to eliminate our high-cost economy.

A currency board could have positive implications for the
Indonesian economy if it is bolstered by the presence of a clean
government with good authority, and by a change in our
bureaucratic mentality and behavior in order to promote a good
and selfless working ethos for greater productivity.

-- Bisnis Indonesia, Jakarta