"Investors need to be convinced that the government could manage the economy amid the monetary turbulence," an economist from the state Gajah Mada University, Sri Adiningsih, said.
Yogyakarta (ANTARA News) - Bank Indonesia and the Financial Service Authority (OJK) need to coordinate intensively to convince the market that the government is well in control of the economy, an economic said.

The market needs to be convinced in order to prop up shrinking rupiah, Sri Adiningsih, a leading economist from the state Gajah Mada University said here on Thursday.

"Investors need to be convinced that the government could manage the economy amid the monetary turbulence," Sri.

She said if the government could continue to boost foreign direct investment (FDI) rupiah could recover and regain its lost value.

"In theory , if dollar supply increases and demand is weak, rupiah would rise," she said.

She said the strong outflow of foreign capital from the Indonesian financial market lately was caused by a number of factors such as uncertainty over whether the interest rates would be raised or not.

"We are all awaiting a decision of the US central bank (The Fed) about plan to raise its benchmark interest rate," she said.

In addition the market also felt the pressure of inflation following the subsidized oil fuel price hike and plan to raise the electricity tariff.

Meanwhile, the Feds policy arm, the Federal Open Market Committee, suggested that if needed, it could wait until beyond mid 2015 to raise the rates against speculation that a hike might come earlier after the strong performance of the US economy.

Sri said Bank Indonesia (BI) must be able to minimize rupiah volatility and the OJK has to make sure that the market remain in normal condition.

"If the condition is well under control, there would be no capital flights from Indonesia)," she said.

She said Indonesia has been too much dependent on portfolio investment funds and short term foreign debts.

The dependence resulted in high volatility of the countrys financial system that a slight turbulence in international economy would cause a jolt in the domestic financial and stock markets, she added.

"The main actors among the market players are not Indonesians any longer. One third of securities are also in the hand of foreign investors," she added.

On Thursday, the rupiah and the index of the Indonesian stock rose strongly on report that the US central bank would not raise its interest rate until mid 2015.(*)

Editor: Heru Purwanto
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