Indonesia plays down capital outflow concern

19:54, June 30, 2010      

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After the global financial routs in 2008 and 2009, the Indonesian government planned to unveil a measure to control the volatility of rupiah by encouraging exporters to park their capital onshore.

The pulling out of over 40 trillion rupiah (some 4.35 billion U. S. dollars) funds by the global investors from the central bank's short-term debt papers known as Sertifikat Bank Indonesia or SBI in May has also triggered such concern as it had decreased the country's state reserve over 4 billion U.S. dollars.

The European debt crisis has led the global investors prefer to keep their capitals at secure assets such as U.S. dollars and gold.

But, now the Indonesian authorities seem not very much worry about it, as the central bank has unveiled a step and plans to adopt some other policies which are expected to be able to control the capital outflows and inflows so that it could control the volatility of rupiah against U.S. dollar.

The bank has ruled that investors have to hold their short-term debt papers at least one month. The bank may launch other policies to control the outflows.

Indonesian Trade Ministry this week canceled a plan to apply a rule requiring exporters of commodity to use a letter of credit for payment.

The plan was made last year, aiming at preventing investors from parking their funds offshore to curb rupiah currency from weakening.

Amid rejection from exporters, the ministry has several times delay the application of the rule before it was finally planned to be applied in July this year.

The cancellation of the rule this week was decided after the country's central bank found solution to control the capital outflows and inflows.

"(The cancellation) means that the government does not need to worry that the funds from exports to be parked in overseas," Suharso Honggokusumo, director executive of Indonesian rubber producers was quoted by Bisnis Indonesia daily as saying.

So far, the number of investors global and domestic ownership at the central bank's short-debt paper/certificate has risen significantly.

The ownership a the certificate on June 24 rose to 44.4 trillion rupiah (some 4.57 billion U.S. dollars), from 33 trillion rupiah (over 3.55 billion U.S. dollars) at the beginning of the month, the daily said.

Rupiah was traded at 9,033 on Tuesday as it has strengthened for five days, it said.

The condition may lead the central bank to unveil steps to control the huge capital inflow.

The success of Madrid launching bonds recently has eased concern on the crisis and the decision on the G20 summit to trim deficit have also eased concern on the impact of crisis on the global liquidity, which may slow capital inflows to emerging market.

Indonesia's sound macro-economics fundamentals supported by relatively stable political condition amid the strong economic growth and expectation that the country will jump to investment grade have made Indonesia as the best investment destination in Southeast Asia.



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