Indonesian gov't must manage heavy capital inflow well: economist

08:32, October 08, 2010      

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The Indonesian government must manage recent heavy capital inflow to the country well, considering that parts of it are hot money that could fly away anytime, posing danger for economy, a bank executive told Xinhua in an exclusive interview on Thursday.

Anton Gunawan, executive vice president and chief economist of publicly listed Bank Danamon Indonesia, said that the capital inflow could be divided into hot money and long-term investment.

"This heavy capital inflow is caused by increasing international confidence on our country and companies. It's true that we have to be alerted of this heavy capital inflow. But, not all the inflow is hot money that could flee anytime," said Gunawan.

On the other side, he said, the increasing capital inflow presents another concern, which is appreciating Indonesian rupiah.

"This could make rupiah appreciate too much that will pose danger for economy," he said.

According to Gunawan, the condition will erode export competitiveness and at the same time, Indonesian products will be beaten by imported ones.

"Export products would be less competitive while import products will heavily flood Indonesian market," he said.

That's why, he said, the government must manage well these funds.

"The government could limit the entrance of the hot money while in the same time, it must facilitate the longer-term capital flow, " he said.

According to Gunawan, as the hot money enters Indonesia through Certificate of Bank Indonesia, the government could limit foreign buying on the instrument.

"However, the central bank are not dare to take such action as the institution is worry that it could trigger the longer-term capital inflow out of the country," he said.

He said that the hot money owners feel safe in Indonesia as rupiah is stable, guarded by Bank Indonesia.

As of April 2010, hot money in Indonesia was expected to reach 80 billion U.S. dollars, higher than the country's foreign exchange reserves of 71 billion dollars as of the second week of April. The money was parked on government bonds and Certificate of Bank Indonesia.

Data provided by the Standard Chartered Indonesia shows that, foreign investors' ownership in the government bonds was 13.9 billion dollars while in the Certificate of Bank Indonesia was 7.2 billion dollars.

Foreign investors also control almost 40 percent of share ownership in the Indonesian capital market that has shares capitalization of 225 billion dollars.



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