Mon, 06 Apr 2009
From:
By Bernie Lo and Arijit Ghosh
April 6 (Bloomberg) -- Indonesia’s central bank Governor Boediono said the rupiah will strengthen by year-end as investors return to the world’s third-largest democracy after peaceful elections.

The rupiah has declined 15.4 percent in the past six months, making it the worst performing among the 10 most-traded Asian currencies outside Japan. It rose 0.9 percent to 11,375 against the dollar at 11:54 a.m. in Jakarta. Indonesia will conduct parliamentary elections this week and presidential polls in July.

“We are in a better condition than other countries, so I think the inflow will come back,” Boediono said in an interview with Bloomberg Television today. “This is not actually only money as such, but money that belongs to our people, which was temporarily parked outside during the election, and they will come back again.”

Indonesia’s $433 billion economy may expand 3.6 percent this year, the fastest-growing major economy in Asia after India and China, according to the Asian Development Bank. The central bank is counting on an election without violence to attract both local and overseas investors to Southeast Asia’s biggest economy.

“We expect smooth parliamentary and presidential elections with no social instability,” said Eric Sugandi, an economist at Standard Chartered Plc in Jakarta. “Moreover, the police and the armed forces have pledged their neutrality and their readiness to maintain security and order.”

The central bank has also signed currency swaps with Japan and China, which helped boost the rupiah “in the margins,” Boediono said.

Political Considerations’

Still, the rupiah won’t appreciate to 9,000 against the dollar, Boediono said. The currency traded at an average 9,141 to the dollar in the two years to Dec. 31. Part of the gains will also be due to the weakness of the dollar, he said.

The central bank is “studying” the International Monetary Fund’s new Flexible Credit Line. However, given the “political considerations,” Indonesia may not use it, Boediono said.

Indonesia was one of the three countries in Asia to seek a bailout from the IMF during a regional financial crisis a decade ago. The Washington-based institution arranged a $25 billion package between 1997 and 2003. The government paid the debt ahead of schedule.

To boost economic growth, the central bank cut its benchmark interest rate to 7.5 percent from 7.75 percent on April 3. The reduction was “just right,” Boediono said. The central bank forecasts the economy to expand between 3 percent and 4 percent this year.

Indonesia’s economy may also get a boost after the Group of 20 countries agreed on principles for financial market regulation, including expanded controls on hedge funds and derivatives trading, and tax havens, as well as rules on compensation and bonuses.

They also pledged additional financing for the IMF and other institutions.

“With the G-20 agreement, I am quite hopeful the de- leveraging and squeeze will stabilize,” Boediono said.

To contact the reporter on this story: Arijit Ghosh in Jakarta at aghosh@bloomberg.net


Tue, 07 Apr 2009
From: JakChat
Comment by Dontpanic
I share that view, and I do think that Boediono and Sri have done an excellent job of putting backup borrowing funding in place adequate to get the country through the crisis in what is likely to be a very difficult environment for developing countries to raise capital.
Indonesia has an economy which, largely because it is 70% domestically driven (Which raises its own questions regarding both investment and the grey economy)is still growing, albeit at a lower rate. In this regard, it is one of very few countries.

The IDR has been unecessarily penalised in the credit crisis. However, foreign investors always get the blame for withdrawal of "Hot money". Whilst foreign "Risk aversion" in this environment has certainly contributed to the pressure on the IDR, actually the arguement does not bear scrutiny. The data actually show that it is LOCAL investors who cause the greater part of the problem. This includes local private investors, who are a truly panicky bunch, but more importantly State owned Banks and State owned Enterprises. The Banks horde USD and stop lending in favour of loading their balance sheets with SBI's and TBonds, which generate good returns with no risk. The SOE's horde dollars and buy Dollars.

If GOI can't control itself, then I suppose that blaming foreigners will remain the usual bogey-man for public consumption. How unusual.



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