Bank Indonesia deputy governor Budi Mulya
JAKARTA, KOMPAS.com – Indonesia’s central bank is looking at new steps to control a surge of capital that is threatening to destabilise emerging economies around the world, the Financial Times reported Friday. In an interview with the FT, Bank Indonesia deputy governor Budi Mulya said restrictions on short-term “hot money” would reduce the potential for capital flows to exit the country just as quickly as they have entered it.
The central bank is examining proposals such as lengthening the one-month minimum holding period for its treasury bills, and extending the minimum duration of bank term deposits from two months to 12, he was quoted as saying.
“We are confident the situation, at this point, is creating benefit for the economy,” he told the newspaper. “(But) we are preparing these measures, which may… be implemented when we think the time is appropriate,” Mulya said.
He also said Bank Indonesia would allow the rupiah to further appreciate, but would intervene where necessary to limit volatility on the currency markets. With the dollar slumping, emerging markets across Asia and Latin America have seen their own currencies rise to alarming levels to the detriment of their exporting firms.
Expectations of even bolder monetary easing from the Federal Reserve have contributed to the dollar’s weakness and sent capital flooding into developing countries as investors seek out higher yields. Indonesia, which was among the countries devastated by a flight of capital during the 1997-98 Asian financial crisis, would be following in the steps of Thailand and Brazil in instituting measures to restrain the flows.
So far this year, Southeast Asia’s biggest economy has attracted 12 billion dollars in foreign capital and the Jakarta stock market is up nearly 40 percent, the FT noted. Any action taken by Bank Indonesia would encourage foreign capital to focus on longer-term returns and investment, Mulya was quoted as saying.
The central bank’s monetary policy is still based on “free mobility of capital” and the proposals amount to “tactical operations” to bolster stability, he said. Indonesia is a member of the Group of 20 nations, whose leaders will address the global capital flows and yawning trade imbalances when they hold a summit in South Korea on November 11-12.
Interviewed separately by the FT, South Korean President Lee Myung-Bak said he was confident the leaders would adopt a deal agreed by their finance ministers to limit the trade imbalances, while shying away from exact targets.
Source : KOMPAS