Long-term capital inflows needed to shore up rupiah
Long-term capital inflows needed to shore up rupiah
JAKARTA (JP): Indonesia needs policies at the moment that will
attract long-term capital inflows in order to shore up the rupiah
and revive the dying economy, economist Rizal Ramli and currency
market analyst Theo F. Toemion have said.
Speaking at the relaunching of Sinar news magazine here
yesterday, they said the interest rates policy currently pursued
by the monetary authorities was not an effective way to
strengthen the rupiah as it only attracted short-term funds.
"I'm afraid the high interest rate policy, if kept for any
longer period, would kill altogether our weak banking system
rather than strengthen our rupiah," Rizal told journalists.
"We do not need such short-term capital inflows. What we need
is longer-term capital to build our economy and eventually
strengthen our currency," he added.
In order to attract long-term foreign funds, he suggested the
government liberalize the relatively well-protected micro-
industry sectors, especially resource-based sectors, to foreign
participation.
"I think there are still many foreign inventors interested in
investing in our fisheries and other resource-based sectors."
Rizal also supported the government's move to sell more of its
shares in listed state firms to foreign investors and to
privatize healthy state firms to get fresh foreign exchange.
"However, everything must be done transparently so the people
know exactly what the government is going to do with all those
funds," Rizal said.
He said the government could also use some of the proceeds to
bail out some private companies' massive debts as they have been
named as some of the major culprits behind the rupiah's collapse.
However, as with the privatization program, both the
government and the private sector must be transparent in tackling
corporate debt.
"The most important thing is transparency and honesty. But the
problem is that we are still in the dark as to who owes how much
to which foreign creditors," Rizal said.
Theo added that a suitable climate must be developed to
attract long-term investment through all-out reforms both in the
banking and production sectors and the legal system.
However, Theo added, the rupiah's current instability would
make it more difficult for the government to attract long-term
funds, which were in turn needed to stabilize the currency.
"So, what short-term policy should the government adopt to
stabilize the rupiah? I think the first thing that should be done
is to review our free foreign exchange regime," Theo said.
The free foreign exchange regime has given more room for
speculators to attack the rupiah, but little maneuvering space
for the government to defend it.
In addition to this the government had to speed up banking
reform so that banks could function again as intermediary
institutions between those who had excess funds and those who
needed funding.
"As long as the rupiah is unstable and the banking sector
remains vulnerable, it is difficult to attract foreign capital
like during our golden time in the early 1990s when we enjoyed
massive foreign capital inflows," Theo said.
Both Rizal and Theo said the government also needed credible
domestic policies to restore local people's confidence in it.
They contended that domestic confidence in the government was
vital for any economic recovery to succeed.
"We do need credible policies, but on top of that we need
credible policymakers to restore public confidence," Rizal said.
(rid)