RI needs some form of capital control: Minister

JAKARTA (JP): State Minister of Investment Hamzah Haz said on Monday that a "limited" foreign exchange control was still needed to ensure that foreign exchange earnings from exports were not deposited in overseas banks.

Although copying the Malaysian style capital control would be harmful to the Indonesian economy, a "kind of instrument" which could encourage exporters to keep their export receipts at local banks was still necessary, Hamzah said.

He suspected that a large percentage of the country's export earnings were kept at overseas banks due to the absence of a foreign exchange control.

"For example, our export revenue reached US$20 billion, while our import spending only totaled $14 billion, so where is the remaining $6 billion?" he said at a hearing with the House of Representatives.

He said the government was currently investigating whether or not it would be necessary to implement a mechanism that could require exporters to keep all of their foreign exchange earnings in local banks.

"But whatever the move, it must be conservative," he said when he was questioned by the members of the House about the possibility of following the Malaysian government's recent move to control the influx of foreign currencies.

Hamzah said the government could, for example, facilitate exporters to sell their foreign exchange earnings to the central bank to prevent them from depositing the funds overseas.

Bank Indonesia (BI) could in turn provide a swap facility to allow them to buy back the U.S. dollars at attractive rates when needed.

BI has introduced a similar swap facility to local export- oriented companies which voluntarily unload their dollars to the central bank.

But in reality, many of the local companies are reluctant to use the facility, and would rather keep their dollars or deposit them abroad instead, due to concerns that the rupiah could weaken further.

Compulsory

Separately, the Indonesian Chamber of Commerce and Trade (Kadin) also repeated its call on Monday for the government to introduce a ruling, requiring exporters to sell their dollar earnings to the central bank.

The Chambers' chairman Aburizal Bakrie said the government must adopt this semi-stringent exchange system as an alternative solution to help Indonesian companies survive the economic crisis.

"Under such a system, Indonesian companies are obliged to surrender their dollar earnings to the central bank," Aburizal said at a seminar on foreign exchange systems conducted by Kadin.

In exchange, Bank Indonesia should provide a swap facility for the firms, allowing them to withdraw their dollar earnings at a fixed rupiah-dollar exchange rate.

The proposed system should also enable the government to limit the foreign capital influx, brought to the country by speculators which might in turn cause sharp fluctuations in the currencies, he said.

"The system will limit foreign capital inflow with speculative motives, except for direct foreign investment," he said.

Speaking to the same forum, the Coordinating Minister for Economy, Finance and Industry, Ginandjar Kartasasmita, admitted the current free exchange regime had resulted in vulnerability for the Indonesian economy.

Ginandjar told the forum in a statement released by his deputy Djunaedi Hadisoemarto that the free forex policy had led to an influx of foreign capital to the country.

Many of the short term loans were used to finance long-term investment which did not generate foreign exchange incomes, said Ginandjar, who was scheduled to leave for Paris on Monday evening to meet with creditors of the country's sovereign debts.

However, he reiterated that maintaining the current free foreign exchange system was important in order to restore confidence in the country and to strengthen the rupiah, which had sunk by 80 percent since August last year.

"In this situation when our inflation is high, our foreign reserves are small, and the people's and foreign investors' trust in us are low, a control on foreign exchange could discourage foreign investors from investing in Indonesia," he said. (aly/das)