Asia Pacific Central Bank Conference: Concern for Capital Flow to Commodities.
Monday, 24 March, 2008 | 16:31 WIB

TEMPO Interactive, Jakarta: Central Bank Governors from the Asia Pacific are focusing their capital flow from the finance sector to stock exchange commodities.

This concern emerged in the 43th Conference of South East Asian Central Banks (SEACEN) in Jakarta on last weekend. The conference had the topic Financial Deepening to Support Monetary Stability and Sustainable Economic Growth.

In the conference, they were concerned about the invasion of the capital world that can ignite the global uncertainty. As a result commodity prices will continue to increase. In the last two years, the food price, mining material, and energy have jumped significantly at the end of the last two years.

According to the survey of Barclays Capital to 260 institutional investors, the investment in the commodity market has been continuously increased to US$ 178 billion or Rp 1,600 trillion, in 2007. This year, they predicted the capital flow to reach US$ 200 billion.

To manage this problem, they offered a solution of financial deepening, which was about using the benefits of the fund flow to encourage economy activity.

“The financial deepening became important so that the instrument became more liquid and easier to be traded,” said Deputy Governor Bank Indonesia, Hartadi Agus Sarwono, last weekend. According to him, the fund can be used for facilitating the real sector faster.

However, financial deepening also has risk. According to the Economic Minister, Boediono, in his opening speech, financial deepening is important to encourage development but still needs careful steps. For example, it needs a strong regulating body, risk management system, and a need for transparency.

According to Hartadi, the continuous increase of the commodity price will arise a bubble commodity symptom. It means, the commodity price will continuously be increased although it can go down very low.

According to economist Djadjad Wibowo, the symptom is because the investors changed their hot money from the money market to the commodity market. That is to diversify the risk and as a loss of compensation after being blocked by a credit jam from the housing investment last year. “I am worried the bubble will break and the price will be very low when entering the production period.”
Therefore, Hartadi said that the symptom can be prevented earlier by increasing the commodity production. “There should be a balance between supply and demand so the price will not continue to increase,” he said. He mentioned the USA's view to increase the corn production as a biofuel substitute.

The Director for Economy, Research and Monetary Policy, Perry Warjiyo, who is also Executive Director of the International Monetary Fund (IMF), said the world economy will grow. For this year and next , the economy's growth is predicted to be 4.2 percent and 4.3 percent. “It is likely that it will grow below 4 percent,” he said.

Generally, Asian countries will not have an economic recession due to the crisis in the US. “Generally, the financial impact is not going to be huge,” he said. Especially Asian countries have been resistant to a crisis from 1997-1998.

Yuliawati