BI ready to join Asian nations to avoid ‘currency war’

The Jakarta Post | Sat, 10/23/2010 11:33 AM

As currencies of Asian emerging markets have risen due to surging capital inflows, Bank Indonesia (BI) has agreed with international observers who suggested Friday that the region should get together to avoid a “currency war”.

BI Deputy Governor Halim Alamsyah said that Indonesia, as well as other emerging markets, needed to work in harmony in pushing forward efforts to avoid a currency war.

“We don’t want a currency war to happen, it’s not going to benefit any country,” Halim said on the sidelines of a seminar on the macroeconomy and financial policies organized by BI at Hotel Mulia in Jakarta.

International observers from the International Monetary Fund (IMF), Asian Development Bank (ADB) and Bank of Thailand addressed the importance of policy coordination among Asian nations as the favorite destination of global investors.

“The currency war could be tackled if countries cooperate, and therefore coordination is needed,” said Iwan J. Azis, an ADB economist.

Iwan added that China’s reluctance to let the yuan appreciate was one thing that the region could work on in order to maintain each country’s competitiveness. If China strengthens its currency, Iwan explained, then its exports would lose competitiveness compared to Indonesia, Thailand and Vietnam, which exported similar products.

“China would want to let the yuan appreciate if other countries did so too. Nations can conduct talks and discuss the issue. This is the kind of coordination I was talking about.”

China has been preventing the appreciation of the yuan in order to maintain the competitiveness of its exported products in the global market.

Advanced economies, primarily the US, have viewed this policy as unfair, as China’s economy has expanded significantly enough — 9.6 percent in the third quarter of this year — for the country to be able to tackle currency appreciation.

The term “currency war”, according to economists, refers primarily to the two countries, the US and China, but has been widened by some to include emerging markets versus the advanced economies as far as currency values are concerned.

Currencies of emerging markets in Asia have appreciated, with the Malaysian ringgit rising about 11 percent and the Thai baht about 10 percent so far this year.

In Indonesia, the rupiah has appreciated by about 5 percent, also due to heavy inflows of foreign funds.

Foreign investors have pumped over US$12 billion into the nation’s stock and debt markets, while the foreign exchange reserves at the central bank reached $86.5 billion by the end of September, compared to $50.6 billion at the end of December 2009.

BI Deputy Governor Halim said the central bank had curbed the rupiah from appreciating too fast to maintain competitiveness. Unlike other currencies, he said, the rupiah had been appreciating moderately, thanks to BI’s efforts to restrain it from strengthening too fast.

“We did, let’s say, intervene so the rupiah does not appreciate too strongly,” he said, without providing details on concrete actions and the timeframe of the intervention. However, local economists believe the central bank has been buying dollars to keep the rupiah steady. (est)

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