On exchange controls

A comment on Mr. John Slack's letter Give exchange controls a chance of Aug. 13.

It is not disputable that currency exchange rates should be under control. A government (or central bank) should introduce certain currency exchange control measures and enforce them, but should also leave it to the market (and not to anybody or anything else, especially not to the government itself) to say if the measures are good or not. The government should not expect export-oriented businesses, for instance, to sell their dollars at Rp 3,500 per U.S. dollar only because it is so convenient for import-oriented businesses or because the government thinks it is such a nice rate. The result of such a policy would be withdrawal of all currency transactions to the black market, and even less foreign currency available in official channels.

The black market would become the only place to exchange currencies at real rates, and the rate would not necessarily be more favorable for rupiah holders than it is today. On the contrary. In other words, we would have the official rate of Rp 3,500 per U.S. dollar and a very limited amount of U.S. dollars available in banks, and we would have real, black market evaluated rate of Rp 13,000 per U.S. dollar, where the foreign currencies would only be available.

This would not be the only consequence of such a (Soviet style?) measure. Business results of both U.S. dollar net-earners and net-spenders would become more dependent on having access to "cheap" government dollars (and appropriate connections) than on good production management. I leave it to Mr. Slack to judge: would it help or hamper the reform efforts?

BRANIMIR SALEVIC

Jakarta