Repatriation of earnings not planned

JAKARTA (JP): The capital-flow monitoring mechanism being prepared by the monetary authorities will not force exporters to surrender their hard currency earnings to the central bank, Bank Indonesia Governor Sjahril Sabirin said on Tuesday.

The government is not preparing capital controls but a mechanism to better monitor the flow of foreign exchange, he said.

"Repatriation of export earnings is not included (in the draft). Our attention focuses on better ways of monitoring foreign exchange traffic," Sjahril told reporters after a meeting with Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita.

He explained the forex monitoring plan would only be an additional measure to the requirement imposed in March on the estimated 2,000 private sector debtors to report their foreign borrowings to the central bank.

"We just want to keep better and more timely appraisal of the inflow and outflow of foreign exchange."

Sjahril expected the International Monetary Fund and the World Bank would back the central bank's plan because it would only involve monitoring of capital flow.

"I think the IMF and WB will support the idea... It's just a monitoring plan, not a capital control."

Separately, IMF Asia Pacific director Hubert Neiss said on Tuesday that he would not back any plan to force exporters to repatriate their foreign exchange earnings.

"This is a type of foreign exchange control," Neiss was quoted by Dow Jones Newswire as saying in Singapore.

"We would not recommend that this is done because it may have an adverse confidence effect and nobody knows how effective it would be."

He believed Indonesia would not implement such a capital control plan.

Neiss was attending the World Economic Forum's East Asia Economic Summit in Singapore.

The IMF is organizing a multibillion dollar bailout package to help finance the crisis-hit country's economic reform programs.

Neiss is expected to arrive in Jakarta on Wednesday afternoon for a regular monthly review of the IMF-sponsored economic reform programs, which will likely be followed by another disbursement of US$1 billion.

The market presumed the government would force exporters to repatriate their earnings after a newspaper quoted Ginandjar as saying early last week that imposing a capital monitoring system was on the government's agenda.

It helped the rupiah to strengthen significantly against the U.S. dollar, closing at Rp 9,050 on Friday, compared to more than Rp 10,000 last month and Rp 15,000 in June.

Meanwhile, Minister of Finance Bambang Subianto said on Tuesday the significant improvement in the rupiah exchange rate was generated by stronger confidence in the country, including in the government's crisis management programs.

Foreign investors had responded positively to the social safety net program, bank restructuring measures and private sector overseas debt restructuring program, he said.

"Without improved confidence, the rupiah will not follow the regional trend," he told reporters after deliberations on the new banking bill with House of Representatives Commission VIII on finance and banking.

Most analysts attributed the strengthening of the rupiah last week to improving sentiment in regional currencies as the dollar weakened against the yen.

The rupiah was trading at Rp 8,950 to Rp 9,100 to the dollar late on Tuesday. (rei)