Mar'ie, experts welcome capital control plan

Mar'ie, experts welcome capital control plan

JAKARTA (JP): Former finance minister Mar'ie Muhammad has
welcomed the government's plan to introduce as yet unspecified
forms of capital controls to help stabilize the beleaguered
rupiah.

"The current foreign exchange regime is too free and needs
some regulation," Mar'ie told reporters on the sidelines of a
seminar.

He added that most of financial market practitioners who
convened in Shanghai for the recent Pacific Rim gathering which
he attended were agreed on the need for some form of capital
controls.

He stressed, however, that the government should not copy
Malaysia and peg its currency to a fixed rate against the U.S.
dollar, saying this would not serve as a quick-fix for the ailing
rupiah.

"If we immediately fix our currency, I'm afraid that a black
market would flourish and that would be counterproductive. A
natural appreciation of the rupiah would be much better and more
sustainable," said Mar'ie.

Mar'ie, who was finance minister until the middle of March,
is now chairman of the Indonesian Transparency Society and
president commissioner of state-owned Bank Mandiri. The bank was
recently established to absorb four troubled state banks that
will shortly be merged.

"What is needed is some form of regulation to bring order to
the inflow and outflow of foreign exchange," he said.

Marzuki Usman, chairman of the Indonesian Society of
Economists, agreed that cross-border capital movements needed to
be brought to order through regulation.

"Even in the U.S., currency transfers of more than $10,000
require reporting forms to be filled out," added Marzuki, who is
also the Minister of Tourism, Arts and Culture.

Mar'ie said that among the alternatives that could be adopted
was a regulation requiring exporters to repatriate their export
earnings and report their foreign exchange revenues to Bank
Indonesia.

"Let the government decide on what form of capital flow
regulations will be adopted. I will support any move which
results in better monitoring of capital flows," he said.

Mar'ie and former Bank Indonesia governor Soedradjad
Djiwandono decided to free float the rupiah in August last year
to secure the country's foreign exchange reserves in the midst of
an intensive attack by speculators on the rupiah which followed a
sharp devaluation of the Thai baht. However the rupiah continued
to tumble, falling to as low as Rp 17,000 against the dollar in
January of this year. The rupiah traded at around Rp 2,450 to the
dollar before July last year.

Coordinating Minister for Economy, Finance, and Industry
Ginandjar Kartasasmita said on Thursday that a regulation forcing
exporters to repatriate their hard currency was an "attractive
option", but said that the government was also looking at other
options, including a system of capital inflow monitoring and
taxation currently used in Chile.

He stressed, however, that the latter did not constitute a
form of capital control.

"We will continue to adhere to an open capital account," he
told reporters on the sidelines of a meeting of trade ministers
of the Association of Southeast Asian Nations in Manila.

Market players and analysts, however, said that any rule
forcing exporters to report their hard currency earnings or
surrender them to the central bank could be interpreted as an
undue control on the movement of capital.

Official confirmation that the government is considering
various capital control options coupled with improving sentiment
in regional currencies helped the rupiah to strengthen to levels
not seen since riots rocked the country in May.

The rupiah closed at Rp 9,100 against the U.S. dollar on
Thursday, well above the government's year-end target of Rp
10,000.

Separately, economist Faisal Basri said he believed the
government would force exporters to repatriate their foreign
earnings.

"I think the government is moving in that direction. They will
introduce the regulation when the exchange rate is deemed to be
low enough," he told reporters on Thursday.

He said the right time to introduce controls would be when the
rupiah strengthened to a point that speculators were shifting
from dollar to rupiah positions.

He also shared Mar'ie's view that the government should not
follow Malaysia's example, saying that a strong and trustworthy
bureaucracy was a prerequisite for any such measures to succeed.

"Our bureaucrats are corrupt," Faisal added. (rei)