Jakarta, March 24 (Antara) - Some economic observers have raised doubts
about the effectiveness of the recent government's economic structural
reform policy package implemented to control fluctuations of the rupiah
currency against the US dollar.
On Monday, last week, the government issued an economic policy package
aimed at improving the performance of Indonesia's trade balance and
services trade balance, which had become the dominant contributors to
the country's current account deficit.
The government economic structural reform policy package comprises
policies on tax allowance, anti-dumping import duties, visa-free
facility, the use of 15 percent biofuel mix, the application of Letter
of Credits for mining companies, and the restructuring of domestic
reinsurance firms.
Economic political observer Ichsanuddin Noorsy pointed out that the
government's economic policy package was not adequate to strengthen the
rupiah value to a stable level.
"Even though the government implements the economic policy package, the
rupiah currency will remain under turmoil," noted Noorsy.
The same opinion was also echoed by economic observer Suroto, the
chairman of the Strategic Socio-Economic Cadres Association (Akses). He
said that the government's economic policy package had yet to capture
the essence of the problems.
"External factors are dominant in affecting the rupiah fluctuations, so
it would be more effective if they are handled with the intervention of
Bank Indonesia (BI/the central bank). The BI should release its foreign
exchange reserves in the market," Suroto affirmed in Jakrta on
Wednesday.
Chief Economic Minister Sofyan Djalil announced the government's economic policy package last week.
"The first policy is tax allowance for companies investing in
Indonesia, companies creating employment, companies that are
export-oriented, and companies that carry out research and development,"
he revealed.
He
said the government will also issue an anti-dumping policy by imposing a
temporary anti-dumping tax and a temporary security import tax on
imported products that are traded unfairly through dumping to protect
domestic industries. This policy aims to protect the domestic
industries.
In the tourism sector, the Indonesian government, in April, will start
offering free-visa facility to 30 new countries, the minister remarked.
Thus, the number of countries to avail the visa-free facility will
increase to 45 after 15 others have previously enjoyed the facility.
The Indonesian government has also raised its biofuel mix of diesel
fuel oil from 10 percent, called (B10), to 15 percent (B15) in an effort
to cut fossil fuel imports and save US$2.54 billion per annum.
With regard to mining and natural resources, he stated that the
Indonesian government will implement a Letter of Credit system policy
for companies operating in coal, oil and gas, and crude palm oil
business.
The minister explained that the government will also encourage the
improvement of the structure of domestic reinsurance companies to boost
growth in the sector.
"The
government will conduct restructuring and revitalization of the
domestic reinsurance industry. Starting today, we will introduce a new
state-owned reinsurance company, which is the result of the merger of
two small companies that will become our national reinsurance company,"
Minister Djalil noted.
The government said the current account deficit is an internal problem
that must be handled as it has a negative impact on the rupiah exchange
rate.
With greater control over the deficit, Indonesia's economic
fundamentals can be better insulated from global economic pressures.
However, according to Ichsanuddin Noorsy, the government's economic
policy package adopted to overcome the weakening of the rupiah had yet
to touch upon the root cause of the problem.
"The root cause of the problem lies in the world trade war and the
tight monetary competition," Noorsy asserted in a discussion on the
weakening of the rupiah and its impact on Indonesia's economy at the
Parliament building, in Jakarta, on Thursday.
Therefore, the government should be wary about this development, so that the rupiah will not depreciate further.
He noted that the United States and China respectively employ their
strategies in waging a trade war with each other, but the impacts of
their trade war are felt by several countries, including Indonesia.
China can effectively capitalize on the US trade deficit with its real
sector capable of balancing its financial sector, and so, it can
strengthen its currency against the US dollar.
Meanwhile, there are looming concerns whether Indonesia's real sector
can balance its financial trade sector. Hence, the government's economic
policy has not yet been able to stabilize the rupiah value. Although
the policy package has been implemented, the rupiah will likely remain
volatile, Noorsy stated.
Therefore,
according to observer Suroto of the Akses, the BI should release its
foreign exchange reserves in the market to increase the rupiah value.
Suroto explained that the market could be easily controlled and would not cause turmoil if BI intervenes immediately.
"BI harbors excessive fears regarding the Fed's plan to increase its
interest rate. Thus, BI withholds its foreign exchange reserve level and
this will only make the condition even more difficult later on," Soroto
added.
He noted that the matter is apparent by the government and BI's
policies that are no longer in synergy. The BI has been too conservative
in its policies.
As a result, Suroto claimed that such an attitude will adversely have a
boomerang effect on the value of the rupiah due to external factors and
would not soon return to normalcy.
"Speculative buyers will withhold the greenback, while regulations to
control them are weak. This is also caused by the government itself
failing to set an example through state companies, which are even fond
of borrowing dollars," he remarked.
Suroto stated that if the government and BI did not soon coordinate
their policies, then it is likely that the second Asian financial
crisis, such as that in 1997, could recur.
***3***
(T.A014/INE)
EDITED BY INE
(T.A014/A/BESSR/A. Abdussalam) 24-03-2015 19:14:3 |
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