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)