Rupiah under Pressure, Hot Money Reviewed

JAKARTA, KOMPAS.com — The flow of short-term foreign funds or hot money, causes fluctuations on the exchange value of rupiah. This causes the Indonesian central bank Bank Indonesia (BI) to consider the possibility to limit it.

"We're studying pros and cons of limiting the flow of hot money," said the Deputy Governor of BI, Hartadi Agus Sarwono, Tuesday. The flow of foreign funds, said Hartadi, has potential to become hot money. "It can come and  go out of country easily country in a short period," he added.

Hartadi doesn't deny that these foreign funds usually enter the monetary instruments such as Bank Indonesia Certificates (SBI). Based on Kontan's record, on October 20, 2009, the foreign funds in SBIs amounted to Rp. 52 trillion. A week later, or until October 28, 2009, the value dropped to Rp. 47 trillion. Till last week, the foregin funds in SBIs are still up to Rp. 46 trillion.

Despite that, Hartadi assured that the foreign funds circulating in SBIs are still under control. "Meaning  Rp. 10 trillion does not come in at once, before all of it goes out the following day. Then the next week another Rp. 10 trillion comes in," he said.

Because of that, Hartadi concluded, the current BI policy is still sufficient. He said that the point is, "Our policy must be able to minimize the effect of hot money."

For that, BI continues to monitor the foreign exchange dealing room. BI at the right time will sterilize the foreign currency market with an intervention.

For instance, when a foreign fund comes from a foreign investor into the banking and causes the market to be over-liquid, then BI will intervene by buying USD. On the contrary, BI will sell USD if its supply in the market drops.

Hartadi predicts, until the end of 2009, the flow of foreign funds will still flow in Indonesia. The reason is that the USD weaking era still persists until the economy problem in the US has really been resolved.

"The weakening of USD is the concern of many countries," he said. (Andri Indradie/Kontan/C17-09)