Mar'ie tells banks to raise rates to stop capital flight

Mar'ie tells banks to raise rates to stop capital flight

JAKARTA (JP): Minister of Finance Mar'ie Muhammad said
yesterday that following the recent increase in U.S. interest
rates, domestic banks will have to raise their deposit rates in
order to curb capital flight.

"We have to raise our interest rates. Otherwise, capital will
flow out of the country," Mar'ie said in a hearing with
Commission VII of the House of Representatives here yesterday.

The U.S. Federal Reserve recently increased its interest rates
by 0.75 percentage point, the largest since May 1991, to curb the
overheating U.S. economy.

Mar'ie acknowledged that increases in the domestic deposit
rates will result in the increase of lending rates.

A number of private domestic banks have raised their interest
rates by one percentage point since last week in response to the
hikes in U.S. interest rates.

Mar'ie said the government, in its efforts to curb capital
flights, has also required companies generating cheap money from
the public by floating shares on the capital market to explain
their plans for the money in their prospectuses.

"We monitor the use of the money through the share issuers'
regular reports required by the Capital Market Supervisory Agency
(Bapepam)," he said.

As of Oct. 31, a total of Rp 31.21 trillion (US$14.2 billion)
was raised through the capital market, of which Rp 24.95 trillion
was generated from the sales of shares and Rp 6.26 trillion from
the sales of bonds.

Mar'ie also acknowledged that a number of Indonesian companies
have invested their funds abroad as a consequence of the
country's policy of an open economy, though the amount is still
limited.

He noted that the government is committed to continuously
improving the investment climate in the country both to attract
foreign investment and to curb capital flight.

The government, for example, will soon submit a bill on
capital markets to the House of Representatives for approval in
an effort to improve business certainty, he said.

The Jakarta Stock Exchange (JSX), whose management has been
privatized, will also start computerized trading early next year,
when its activities move to a new building in South Jakarta.

"By the end of next year, JSX will be among the most modern
exchanges in the world, Mar'ie told the commission, which deals
with trade, finance and cooperatives.

Tariffs

Mar'ie, in response to questions of the commission, also said
that the government will continue lowering import tariffs and
reduce non-tariff barriers to improve the competitiveness of
Indonesian products on the world market.

Indonesia is a member and founder of the Association of
Southeast Asian Nations (ASEAN), which has agreed to liberalize
trade among its members by 2003.

The country is also a member of the Asia Pacific Economic
Cooperation (APEC) forum, which decided earlier this month to
liberalize trade and investment by 2020.

"Aside from any international agreements, we have been
committed to lowering our import tariffs to meet the challenge of
international competition," said Mar'ie, who chairs the tariff
team which also includes Minister of Trade Satrio B. Joedono and
Minister of Industry Tunky Ariwibowo. (rid)