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inance Minister Chatib Basri announced on Tuesday a total of US$30 billion in foreign reserves from bilateral swaps and multilateral banks were in the pipeline to strengthen the second line of defense for the rupiah against capital outflows.

Indonesia also offered $1.5 billion of dollar-denominated Islamic bonds on Tuesday. Though the yield, at 6.37 percent, was the highest rate for global sharia-compliant securities since 2009, the new funds could still help bolster Bank Indonesia'€™s (BI) international reserves, our first line of defense, which have decreased by an estimated $20 billion over the last two months alone.

Latest reports showed that in China, the economy had begun recovering from its slow growth of 7.5 percent in the second quarter and its impact would soon be felt by Indonesian commodity exporters. These new positive factors, combined with the positive impact of the recent policy packages to cut down imports and maintain business competitiveness through tax incentives, and the tighter monetary policy of the central bank, are expected to mitigate further capital outflows and stabilize the rupiah exchange rate.

In fact, the latest indications from the equity and financial markets showed that the worst seemed to have passed with the rupiah and the stock market already regaining some of their big losses in August.

The financial market outlook would even be more bullish if the central bank again raised its benchmark interest rate at least by 50 basis points today. High interest rate differentials and a more stable rupiah would eventually bring back portfolio capital inflows and weaken inflationary pressures.

The strongest push factor of capital flows over the past three months, besides the upcoming monetary tightening in the United States, is Indonesia'€™s huge current account deficit, which reached as much as 4.4 percent of gross domestic product (GDP) in the second quarter. Analysts estimated over the past three months alone about $23.5 billion in foreign funds flew out from rupiah assets '€” shares and bonds. In the past, the current account deficit was financed by capital inflows, lured by the high interest rate differentials, a stable rupiah and the country'€™s bright economic prospect.

The restoration of investor confidence in our economy would be faster if the government accelerated the pace of its structural reforms to strengthen the medium- and long-term outlook of the economy. We should take the biggest advantage of the current '€œmini'€ crisis to launch painful reforms that are politically unfeasible and unacceptable in good times.

In view of the legislative and presidential elections next year and as most leaders of the opposition parties are eyeing the presidency, it could be much easier now to work out political consensus on reform measures to improve the economic competitiveness because whoever will win the elections will not be willing to inherit a ruined economy.

Yet, more encouraging is that politicians, having seen the severe damage the capital outflows have exacted on or economy, will not likely resort to bashing foreign capital to appeal to voters'€™ nationalism.