Strict policy needed in dealing with foreign funds
Strict policy needed in dealing with foreign funds
JAKARTA (JP): Indonesia should have a strong monetary policy
in dealing with the harmful impact of the massive flow of foreign
funds into the country, says Robert M. Stern, a senior economist
of the United States.
Stern, a professor of economics and public policy of the
University of Michigan, said yesterday that establishing a strong
monetary instrument would be more affective than engaging in
joint forces with other nations.
Speaking at a discussion on economic trends in the Asia-
Pacific region held by the United States Information Services,
Stern said central banks of rapidly growing countries, now
becoming popular targets of global fund managers, should be
equipped with a strong policy to enable them to counter the
possible rush of foreign funds.
Stern was in Jakarta to address a seminar on challenges and
opportunities of free trade in services jointly held by the
Indonesian Economists Association and United States Information
Services on Thursday.
In yesterday's brief discussion, Stern said that at the
current situation, in which most of the world's major financial
agencies have been electronically integrated, global fund
managers are more encouraged to switch their funds from one
country to another for a higher return.
However, besides giving additional capital, more integrated
financial markets could cause troubles to the receiving country,
like that hitting Mexico last year, he said.
The massive rush of foreign funds from Mexico, which nearly
paralyzed the country's economy, also affected Taiwan, Hong Kong,
Indonesia and other Southeast Asian nations, causing a sharp
depreciation of their currencies against the world's major
foreign currencies.
The sequential impact of the financial crisis to Asian
countries lasted for nearly a week, forcing central banks in the
region to hold a meeting to jointly solve the problem.
Impact
Stern, who has published various books on international
commodity problems, comparative advantage, price behavior of
international trade, balance-of-payment policies and computer
modeling international trade and trade policies, said that the
impact of the massive rush of foreign capital could be severer
when the liberalization of financial services, now in its early
stage, is fully implemented, if the central bank can't
effectively regulate the money in circulation.
He also warned that domestic banks have to upgrade their
workforce and technology to enable them to compete with larger
banks from overseas, which, in the era of globalization, will no
longer face barriers in entering Indonesia and other restricted
developing countries.
Stern said that the liberalization of financial services would
be very costly to financial institutions in the developing world
but would give a greater advantage to customers.
He said that local banks should, therefore, be able to satisfy
their customers if they want to survive in the tight market.(hen)