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Prabowo’s capital control no different from today

Prabowo’s capital control no different from today

Raras Cahyafitri, The Jakarta Post, Jakarta | Business | Mon, June 23 2014, 11:07 AM

Presidential candidate Prabowo Subianto may have said he intended to impose stricter control over the country’s monetary system during a discussion last week, but his campaign team said the rupiah would continue to be a floating currency.
Speaking at a discussion with the business community on Friday, Prabowo said a more rational method to manage the exchange rate of the rupiah, which is under pressure, was necessary.
However, Drajad H. Wibowo, a member of Prabowo’s campaign team, said the floating exchange rate regime would be kept intact and there was no plan to change it into a pegged system.
“We will seek an interval. We have to maintain the rupiah’s exchange rate at the most optimal interval for the interest of all, including exporters and importers,” said Drajad, deputy chairman of the National Mandate Party (PAN).
He said that if Prabowo was elected president, the government would manage the trade deficit and allow Bank Indonesia (BI) to help maintain the rupiah’s exchange rate.
“We will increase synergy with BI and be proactive in maintaining the gap. It [exchange rate regime] is neither 100 percent free nor fully controlled,” Drajad said.
Prabowo’s running mate, Hatta Rajasa, is the chairman of PAN and a former coordinating economic minister.
During Friday’s discussion, Prabowo said the country still needed a free-floating exchange rate system. However, he said, the government also needed to consider “more rational methods to secure national interests”.
Bank Mandiri chief economist Destry Damayanti considered Prabowo’s statement vague.
“It’s likely to be similar with the current method, which is free floating as BI has said. However, the message is the same that in the end we cannot leave it to the market 100 percent. The important thing is to maintain the independency of BI and at the same time maintain coordination,” Destry said.
She said BI intervention remained necessary to keep the rupiah’s volatility within an acceptable range.
The rupiah exchange rate against the US dollar hit 12,000 last week, the lowest level in four months, as investors dumped assets amid concerns that tension in Iraq would raise oil prices and, in turn, further hurt the trade balance of Indonesia, an oil importing country.
The nation’s currency has lost 2.7 percent of its value this month, making it the worst performing currency in Asia. Analysts have argued that Indonesia’s trade deficit, which reached a nine-month high of $1.96 billion in April, was the main catalyst of the currency’s poor performance.
Rising imports of oil and its products have become a big burden for the country’s state budget as it continues to channel a huge amount to cover the fuel subsidies.
Both presidential candidates, Prabowo and Joko Widodo, have vowed to cut the subsidies if they win the election. Cuts in subsidies have been a hot issue in the country of over 240 million people. However, the subsidies have been said to miss their target as well-paid people also enjoy them.
Prabowo, a former Army’s Special Forces (Kopassus) commander, said he planned to reduce the subsidies by half or two-thirds within three years by redirecting the subsidies to benefit only the poorest.

 

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KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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