RI needs some form of capital control: Minister

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)